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Ohrstrom v. P.B. Ohrstrom & Sons, Inc.

United States District Court, N.D. Illinois, Eastern Division

July 24, 2018

TOM OHRSTROM, individually and derivatively on behalf of P.B. Ohrstrom and Sons, Inc., Plaintiff,
v.
P.B. OHRSTROM & SONS, INC., MAXICROP U.S.A., INC., and LARS OHRSTROM, Defendants.

          OPINION AND ORDER

          SARA L.ELLIS UNITED STATES DISTRICT JUDGE

         Upset with his brother's management of the company founded by his father, Plaintiff Tom Ohrstrom (“Tom”) filed this action on his own behalf and as a shareholder derivative suit on behalf of P.B. Ohrstrom and Sons, Inc. (“P.B. Ohrstrom”) against P.B. Ohrstrom, its wholly owned subsidiary, Maxicrop U.S.A., Inc. (“Maxicrop”), and his brother, Lars Ohrstrom (“Lars”). Tom brings claims both individually and derivatively on behalf of P.B. Ohrstrom against Lars claiming that Lars breached his fiduciary duties to Tom and the company. Tom also brings claims against P.B. Ohrstrom and, derivatively on behalf of P.B. Ohrstrom, against Maxicrop under Section 12.56 of the Illinois Business Corporation Act, 805 Ill. Comp. Stat. 5/12.56, seeking the dissolution of the companies and a judicial sale of their assets. Lars, joined by P.B. Ohrstrom and Maxicrop, has moved to dismiss the complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim pursuant to Rule 12(b)(6). The Court finds that it has diversity jurisdiction over the claims against Lars but not over those against P.B. Ohrstrom or Maxicrop. And with respect to the claims against Lars, Tom has sufficiently alleged the required elements for both his direct and derivative breach of fiduciary duty claims to proceed to discovery.

         BACKGROUND[1]

         P.B. Ohrstrom is a closely held Illinois corporation with its principal place of business in Elk Grove Village, Illinois. It imports and distributes seaweed and seaweed extracts for the feed, home and garden, horticultural, and agricultural markets. Maxicrop, its wholly owned subsidiary, is similarly incorporated in Illinois with its principal place of business in Elk Grove Village. Per Bye Ohrstrom founded both P.B. Ohrstrom and Maxicrop in the 1970s. On its 2015 consolidated federal income tax return, P.B. Ohrstrom and Maxicrop reported a combined total income of over $600, 000. In 2016, they reported over $1, 300, 000 in total income. According to QuickBooks, Maxicrop had sales of $3, 048, 450.73 in 2015, $3, 195, 376.81 in 2016, and $3, 481, 085.29 in 2017. P.B. Ohrstrom had sales of $1, 200, 303.43 in 2015, $1, 246, 713.21 in 2016, and $1, 767, 491.65 in 2017.

         Currently, Tom owns 50% of P.B. Ohrstrom's shares. He lives in California and is one of the directors of P.B. Ohrstrom. Lars, the only other director of P.B. Ohrstrom, lives in Illinois, and owns 25% of P.B. Ohrstrom's shares. The remaining 25% of the shares are split evenly among Lea Kaylan Ohrstrom, Jan Erik Ohrstrom, Jenny Marie Ohrstrom, Per Kristian Ohrstrom, and Anna Liv Ohrstrom. Lars holds the proxies for these five individuals' shares, meaning that he holds 50% of the voting power. Maxicrop has had no directors for over three years, with the P.B. Ohrstrom directors failing for at least two consecutive annual meeting dates to elect successor directors of Maxicrop.

         Lars has been president of P.B. Ohrstrom since November 1, 2015, with his annual salary exceeding $75, 000. Lars maintains corporate financial records in six locked file cabinets in his office at P.B. Ohrstrom's headquarters. Tom has asked for access to review these records, but Lars only gave Tom a key to one of the six cabinets on May 16, 2017, after learning that Tom was consulting with an attorney. The cabinet to which Tom gained access only contains historical financial information, such as old tax returns, and not documents about the companies' current financial condition. Tom did obtain access to QuickBooks in May or June 2017. This data similarly “lags months behind.” Doc. 1 ¶ 22(b). Lars has instructed the companies' accountants not to respond to Tom's requests for information, leaving Tom without access to the companies' accounting, payroll, and bonus payment records from December 1, 2012 to the present, and statements and receipts related to Lars' purchases with his P.B. Ohrstrom business credit card. Lars also has directed the companies' attorneys not to provide Tom with current financial information. Tom made a demand of P.B. Ohrstrom and Maxicrop to inspect their corporate records on May 17, 2017, with little success.

         On September 12, 2017, at the P.B. Ohrstrom annual shareholders' meeting, P.B. Ohrstrom's attorney stated on the record that “We're deadlocked. There's going to be no change of leadership right now.” Id. ¶ 33. He further noted that Lars and Tom did not trust each other. On November 18, 2017, Tom called a special shareholders meeting to elect new directors and, in turn, elect new officers to end Lars' term as president of P.B. Ohrstrom. But Lars voted all his own shares as well as those he held by proxy to reelect himself as a director. With Tom as the only other director, a deadlock resulted, allowing Lars to remain in office.

         On January 24, 2018, Tom made a demand on P.B. Ohrstrom's board of directors for P.B. Ohrstrom to assert a derivative claim against Lars for breach of fiduciary duty and against Maxicrop. On February 5, 2018, P.B. Ohrstrom rejected the demand.

         LEGAL STANDARD

         A motion to dismiss under Rule 12(b)(1) challenges the Court's subject matter jurisdiction. Fed.R.Civ.P. 12(b)(1). The party asserting jurisdiction has the burden of proof. United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2003), overruled on other grounds by Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845 (7th Cir. 2012). The standard of review for a Rule 12(b)(1) motion to dismiss depends on the purpose of the motion. Apex Digital, 572 F.3d at 443-44. If a defendant challenges the sufficiency of the allegations regarding subject matter jurisdiction (a facial challenge), the Court must accept all well-pleaded factual allegations as true and draw all reasonable inferences in the plaintiff's favor. See id.; United Phosphorus, 322 F.3d at 946. If, however, the defendant denies or controverts the truth of the jurisdictional allegations (a factual challenge), the Court may look beyond the pleadings and view any competent proof submitted by the parties to determine if the plaintiff has established jurisdiction by a preponderance of the evidence. See Apex Digital, 572 F.3d at 443- 44; Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 543 (7th Cir. 2006).

         A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its merits. Fed.R.Civ.P. 12(b)(6); Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded facts in the plaintiff's complaint and draws all reasonable inferences from those facts in the plaintiff's favor. AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011). To survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant with fair notice of a claim's basis but must also be facially plausible. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.

         ANALYSIS

         I. Subject Matter Jurisdiction

         First, Defendants argue that the Court does not have subject matter jurisdiction over Tom's claims. Diversity jurisdiction exists in cases where the amount in controversy exceeds $75, 000 and the plaintiff and ...


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