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Sunlitz Holding Co., W.L.L. v. Trading Block Holdings, Inc.

Court of Appeals of Illinois, First District, Fourth Division

August 14, 2014

SUNLITZ HOLDING COMPANY, W.L.L., HERBERT J. WALBERG, and ROGER S. BROWNWORTH, Plaintiffs-Appellants,
v.
TRADING BLOCK HOLDINGS, INC., and STEPHEN HOFFMAN, in His Capacity as Chief Executive Officer of Trading Block Holdings, Inc., Defendants-Appellees

Appeal from the Circuit Court of Cook County. No. 13 CH 14717. Honorable Neil H. Cohen, Judge Presiding.

COUNSEL FOR APPELLANTS: Anthony C. Porcelli, Jeremy S. Unruh, Nicole A. Poulos, Polsinelli PC.

COUNSEL FOR APPELLEES: John M. Riccione, Lisa J. Brodsky, Amy M. Rapaport, Aronberg Goldgehn Davis & Garmisa.

JUSTICE EPSTEIN delivered the judgment of the court, with opinion. Presiding Justice Howse and Justice Lavin concurred in the judgment and opinion.

OPINION

Page 716

EPSTEIN, J.

[¶1] This case presents the question of whether shareholder-plaintiffs Sunliz Holding Company, W.L.L. (Sunliz),[1] Herbert J. Walberg, and Roger S. Brownworth (collectively, plaintiffs) established a proper purpose to inspect the books and records of the defendant corporation Trading Block Holdings, Inc. (Trading Block), under section 7.75 of the Business Corporation Act of 1983 (the Act) (805 ILCS 5/7.75 (West 2012)). Plaintiffs filed a complaint seeking a writ of mandamus compelling defendants Trading Block and Stephen Hoffman, the chief executive officer

Page 717

of Trading Block (collectively, defendants), to allow plaintiffs to inspect certain books and records of Trading Block in order to determine whether Trading Block's directors and officers had engaged in self-dealing to the detriment of the corporation. Plaintiffs appeal from the trial court's grant of defendants' motion to dismiss the complaint. We conclude that plaintiffs established, with particularity, a proper purpose in seeking to review Trading Block's books and records. We reverse the trial court's dismissal of plaintiffs' complaint and remand for further proceedings.

[¶2] I. BACKGROUND

[¶3] Trading Block is an Illinois corporation offering online brokerage services for retail trading and investing in stocks, bonds, and exchange-traded funds. Trading Block owns two subsidiaries: AOS Inc. and MoneyBlock. Plaintiffs are shareholders of Trading Block.

[¶4] On April 1, 2013, plaintiffs, through their attorney, sent a letter to Hoffman, the chief executive officer of Trading Block, requesting an opportunity to review certain records of Trading Block and its subsidiaries: (1) the articles of incorporation, bylaws, shareholder agreements, and any amendments to those documents; (2) agendas and minutes for any board of directors' meetings occurring from January 1, 2011 to present; (3) resolutions of the board of directors from January 1, 2011 to present; (4) share certificates; (5) current and original capitalization tables, and a list and explanation for any changes to the capitalization table; (6) any contracts between Trading Block and its officers and directors; (7) financial statements, including balance sheets, income statements, statements of cash flow, and profit and loss statements, from January 1, 2011 to present; (8) the general ledger and QuickBooks files; (9) accounts payable and receivable from January 1, 2011 to present; (10) federal and state income tax returns from January 1, 2011 to present; (11) marketing and private placement memoranda used to raise capital; (12) all reports filed with any regulatory agencies; (13) any correspondence with the Financial Industry Regulatory Authority, Security and Exchange Commission, and Chicago Board Options Exchange from January 1, 2011 to present; (14) all offer letters sent to brokers from January 1, 2011 to present; (15) " [a]ll documents and analyses relating to and/or supporting the decision by the TradingBlock [ sic ] Board of Directors to propose shareholder action related to adoption of the *** 2012 Stock Option Plan in approximately June[ ] 2012" ; and (16) " [a]ll documents and analysis [ sic ] related to and/or supporting Trading Block's Offer to Exchange Shares of Series A Preferred Stock for Secured Promissory Note at $1.10 Per Share, as detailed in the correspondence dated approximately December 26, 2012 to the Holders of Series A Preferred Stock and as mentioned in TradingBlock's [ sic ] 2012 year-end summary letter e-mailed to all shareholders approximately December 18, 2012." Plaintiffs sought these books and records " to determine the financial condition of the company, the character of the management of the company, and whether the company's financial practices [we]re appropriate."

[¶5] On April 30, 2013, defendants, through their attorney, responded with a letter stating that, " [w]ithout more, neither the character of the management of the Company nor a general inquiry regarding the Company's 'financial practices' is a proper purpose for a Section 7.75 request." The letter characterized plaintiffs' request for " a broad range of records" as a " 'fishing expedition.'" Defendants enclosed with the letter copies of Trading Block's balance

Page 718

sheets and profit and loss statements for the fiscal years that ended December 31, 2012 and December 31, 2011. The letter also gave permission for Walberg and Brownworth to share " the package of information that was provided to the Company's preferred shareholders in connection with the exchange offer recently undertaken by the Company" with Sunliz.

[¶6] On May 17, 2013, plaintiffs responded with another letter from their attorney requesting an opportunity to review Trading Block's books and records. Plaintiffs asserted that their purpose in making the request was:

" to understand fully and assess the financial condition of TradingBlock, [ sic ] how the company is being managed, whether the company's financial practices are appropriate, and whether there has been any self-dealing by TradingBlock's [ sic ] management and/or members of the Board of Directors that has had a ...

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