{ "id": 3483276, "name": "TERRANCE L. JOHNSON, Plaintiff-Appellee, v. GENE'S SUPERMARKET, INC., et al., Defendants-Appellants", "name_abbreviation": "Johnson v. Gene's Supermarket, Inc.", "decision_date": "1983-08-23", "docket_number": "No. 4-82-0806", "first_page": "295", "last_page": "304", "citations": [ { "type": "official", "cite": "117 Ill. App. 3d 295" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "88 N.E.2d 100", "category": "reporters:state_regional", "reporter": "N.E.2d", "pin_cites": [ { "page": "104" } ], "opinion_index": 0 }, { "cite": "338 Ill. App. 543", "category": "reporters:state", "reporter": "Ill. App.", "case_ids": [ 5004996 ], "pin_cites": [ { "page": "550" } ], "opinion_index": 0, "case_paths": [ "/ill-app/338/0543-01" ] }, { "cite": "374 N.E.2d 916", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "58 Ill. App. 3d 579", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 5626469 ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/58/0579-01" ] }, { "cite": "108 N.E.2d 729", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "348 Ill. App. 210", "category": "reporters:state", "reporter": "Ill. App.", "case_ids": [ 5099213 ], "opinion_index": 0, "case_paths": [ "/ill-app/348/0210-01" ] }, { "cite": "91 N.E.2d 160", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1952, "opinion_index": 0 }, { "cite": "340 Ill. App. 140", "category": "reporters:state", "reporter": "Ill. App.", "case_ids": [ 4998864 ], "year": 1952, "opinion_index": 0, "case_paths": [ "/ill-app/340/0140-01" ] }, { "cite": "416 N.E.2d 751", "category": "reporters:state_regional", "reporter": "N.E.2d", "pin_cites": [ { "page": "752" } ], "opinion_index": 0 }, { "cite": "92 Ill. App. 3d 1143", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 5534743 ], "pin_cites": [ { "page": "1145" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/92/1143-01" ] }, { "cite": "428 N.E.2d 747", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1981, "pin_cites": [ { "page": "750" } ], "opinion_index": 0 }, { "cite": "101 Ill. App. 3d 767", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3082786 ], "year": 1981, "pin_cites": [ { "page": "770" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/101/0767-01" ] } ], "analysis": { "cardinality": 826, "char_count": 21394, "ocr_confidence": 0.755, "pagerank": { "raw": 7.420798280607254e-08, "percentile": 0.4434750829102392 }, "sha256": "c8f6d221c977a59f51a4b953993b663aa8c2f3fcdc20e48e897c75880b8f4b5d", "simhash": "1:25bbe46076079d13", "word_count": 3335 }, "last_updated": "2023-07-14T15:08:51.886955+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "TERRANCE L. JOHNSON, Plaintiff-Appellee, v. GENE\u2019S SUPERMARKET, INC., et al., Defendants-Appellants." ], "opinions": [ { "text": "JUSTICE MILLER\ndelivered the opinion of the court:\nPlaintiff brought an action for dissolution of defendant corporation, an accounting of the finances of defendant corporation, retaliatory discharge, breach of fiduciary duty, and breach of an employment contract. Prior to an adjudication on the merits, a preliminary injunction issued prohibiting defendants from taking any action indemnifying or reimbursing the individual defendants for their legal expenses in this cause. Defendants have taken an interlocutory appeal to that order.\nWe modify the injunction.\nOn July 7, 1982, plaintiff filed a multicount complaint seeking dissolution of defendant corporation, and actual and punitive damages against the corporation and against Roberta Johnson and Bradford Marquardt, both as individuals and corporate directors, for various acts against plaintiff. A motion to dismiss the complaint was denied, but plaintiff was ordered to amend the complaint so as to separately designate each cause of action.\nA seven-count amended complaint was filed on November 5, 1982. The factual allegations of each count are basically the same. Plaintiff, Roberta Johnson, and Bradford Marquardt are each one-third owners of the common stock of Gene\u2019s Supermarket, Inc. The three of them constitute the corporation\u2019s board of directors. Prior to January 28, 1982, plaintiff acted as the corporations\u2019 secretary and was employed as \u201coverseer of corporate property and affairs\u201d with a $500 weekly salary, use of a vehicle, and a bonus from corporate profits. Roberta Johnson and Bradford Marquardt were president and vice-president of the corporation, respectively. Beginning on October 10, 1981, board meetings were held and illicit and inaccurate minutes were prepared without plaintiff\u2019s knowledge. Plaintiff\u2019s employment was unlawfully terminated and defendants\u2019 salaries were raised at these meetings. Roberta Johnson has refused to let plaintiff see financial records, which he as a director and stockholder has a right to inspect. Plaintiff alleged he has thus unlawfully been excluded from effective participation in the corporation\u2019s affairs and corporate assets are being wasted. Finally, plaintiff alleged that some of these actions have been taken to gain advantage for Roberta Johnson in a pending dissolution of marriage proceeding between her and plaintiff.\nOn October 12, 1982, plaintiff filed a petition for a \u201ctemporary\u201d injunction. (The trial court treated it as a preliminary injunction, which is the appropriate term under section 11 \u2014 102 of the Code of Civil Procedure (Ill. Rev. Stat. 1981, ch. 110, par. 11 \u2014 102).) It alleged that on October 4, 1982, plaintiff received notice of a special meeting of the corporation\u2019s stockholders to consider adoption of a resolution which purported to indemnify defendants from \u201cany and all liability and/or expenses\u201d which they might incur in the present proceedings, and finding that they acted in good faith in all their actions upon which these proceedings are based. It also authorized the payment of the individual defendants\u2019 legal fees as incurred. Plaintiff requested a preliminary injunction forbidding defendants \u201cfrom taking any action designed to indemnify and reimburse\u201d Roberta Johnson and Bradford Marquardt until an adjudication on the merits in this cause, and that otherwise, \u201cwaste\u201d of corporate assets would occur.\nOn November 12, 1982, a hearing on the preliminary injunction was held. The parties stipulated that the corporation did in fact mail out the aforementioned notice and resolution. No evidence was presented, and the parties merely presented arguments regarding the application of the Business Corporation Act (Ill. Rev. Stat. 1981, ch. 32, par. 157.1 et seq.).\nThe trial court found that plaintiff had alleged the conditions necessary for the issuance of a preliminary injunction. The defendants were enjoined from taking any action \u201cto indemnify and reimburse Roberta Johnson and Bradford Marquardt for attorney\u2019s fees, court costs and any other expenses incurred by them in their defense of this lawsuit.\u201d The defendants then filed a notice of interlocutory appeal.\nTo obtain a preliminary injunction the moving party must show: (1) He possesses a right which needs protection; (2) he has a substantial likelihood of succeeding on the merits; (3) he has no adequate remedy at law; (4) he will suffer irreparable injury without the injunction; and (5) in the absence of preliminary relief, he will incur a greater injury than would be received by the objector if the relief was granted. Illinois Consolidated Telephone Co. v. Aircall Communica tions, Inc. (1981), 101 Ill. App. 3d 767, 770, 428 N.E.2d 747, 750; Lums Restaurant Corp. v. Bloomington Restaurant Investments, Inc. (1981), 92 Ill. App. 3d 1143, 1145, 416 N.E.2d 751, 752.\nOn appeal, defendants contend that plaintiff failed to establish (1) a likelihood of success on the merits, (2) that he had no adequate remedy at law, and (3) that he would suffer immediate and irreparable harm without the preliminary relief.\nFirst we dispose of plaintiff\u2019s contention that defendants waived these objections by failing to raise them below. Defendants\u2019 argument regarding success on the merits centers on the sufficiency of both the underlying complaint and the prayer for the injunction. Since the sufficiency of a complaint may be attacked at any time, defendants\u2019 objection thereto was not waived. (See Biehn v. Tess (1950), 340 Ill. App. 140, 91 N.E.2d 160; Curran v. Harris Trust & Savings Bank (1952), 348 Ill. App. 210, 108 N.E.2d 729.) Also, defendants\u2019 attorney argued below that plaintiff had an adequate remedy at law and would not be irreparably harmed because of an undertaking the individual defendants would be required to sign before any funds were dispersed. We conclude that the issues raised on appeal are properly before us.\nThe individual counts of the underlying complaint seek, in summary, the following remedies:\nCount I. Appointment of a receiver, liquidation of the corporation, and an injunction prohibiting the individual defendants from acting for the corporation.\nCount II and III. Actual damages from the corporation and punitive damages from the individual defendants for retaliatory discharge.\nCount III. An injunction requiring the corporation to rehire plaintiff.\nCount IV. An accounting from the individual defendants for all money received by them from the corporation since January 1, 1981, and payment to plaintiff of all sums due him.\nCount V. Compensatory and punitive damages from the individual defendants for breach of a fiduciary duty which they, as controlling shareholders, owed plaintiff.\nCounts VI and VII. Damages from the corporation for breach of an employment contract and an injunction requiring the corporation to rehire the plaintiff.\nDefendants concede that all of plaintiff\u2019s well-pleaded facts must be taken as true since an answer to the complaint was not yet filed at the time of the hearing. Sports Unlimited, Inc. v. Scotch & Sirlion of Woodfield, Inc. (1978), 58 Ill. App. 3d 579, 374 N.E.2d 916.\nDefendants first argue that only count II pertains solely to the individual defendants in their capacities as officers and directors (count V being based on their status as shareholders), and that count II fails to state a cause of action. Therefore, they conclude that there is no basis on which to grant plaintiff relief and he has not demonstrated the likelihood of success on the merits. Defendants have inexplicably ignored counts I and IV, where relief is being sought against the individual defendants as directors, as well as the corporation. Inasmuch as counts I and IV have no facial defects and the factual allegations must be taken as true, we conclude that plaintiff has demonstrated a likelihood of success on the merits.\nThe most serious issue raised on appeal is whether the plaintiff has an adequate remedy at law and has demonstrated irreparable injury within the context of the statutory provision for corporate indemnification. Indemnification of corporate officers, directors, employees, and agents is provided for in section 42.12 of the Business Corporation Act (Ill. Rev. Stat. 1981, ch. 32, par. 157.42 \u2014 12). This section is made up of seven paragraphs, which in sum respectively provide:\n(a) A corporation may indemnify certain specified parties for third party actions when a requisite standard of conduct is met, whether or not the litigant has been successful on the merits.\n(b) A corporation may indemnify certain specified parties for derivative actions when a requisite standard of conduct is met, whether or not the litigant has been successful on the merits.\n(c) A corporation must indemnify the person referred to in (a) and (b) above under certain circumstances when the litigant has been \u201csuccessful on the merits or otherwise.\u201d\n(d) The procedure by which an indemnification under (a) or (b) may be authorized.\n(e) The procedure by which a corporation may authorize the advancement of funds for legal expenses upon receipt by the corporation of an undertaking that such expenses will be repaid by the person on whose behalf the funds were expended, unless it shall ultimately be determined that he is entitled to be indemnified.\n(f) The statute does not exclude other rights to indemnification.\n(g) A corporation may purchase liability insurance for its officers, directors, etc.\nDefendants\u2019 argument that plaintiff has an adequate remedy of law and has not demonstrated that he will suffer irreparable injury in the absence of a preliminary injunction is based on the following propositions:\n(1) The indemnification procedure that defendants intend to follow is authorized by statute.\n(2) The proposed resolution and the statute require that before they receive any funds, the individual defendants sign an undertaking to reimburse the corporation, if it is ultimately found that they are not entitled to be indemnified by the corporation. Thus, if the plaintiff does win on the merits, the corporation can enforce the undertakings.\n(3) Paragraph (d) of the indemnification statute, by providing \u201cunless ordered by a court,\u201d authorizes a court to determine whether an indemnification is proper, thus triggering the enforcement of the undertakings.\n(4) Plaintiff has not alleged that the individual defendants are insolvent, so it must be presumed that they can repay any undertakings which they sign. (See Goldblatt Brothers, Inc. v. Sixty-Third & Halstead Realty Co. (1949), 338 Ill. App. 543, 550, 88 N.E.2d 100,104.)\nWe come to the same conclusion as the defendants, but because of a confusion in terminology and ambiguity in the statute, the proposed corporate resolution, and the injunction, we find it necessary to allow the injunction to stand with modification. The resolution of the issue requires a close examination of the interrelationship between paragraphs (d) and (e) of the indemnification statute. They provide, in pertinent part:\n\u201c(d) Any indemnification under paragraphs (a) and (b) (unless ordered by a court) shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (a) or (b). Such determination shall be made [by disinterested members of the board of directors, independent legal counsel, or stockholders].\n(e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding, as authorized by the board of directors in the specific case, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this Section.\u201d Ill. Rev. Stat. 1981, ch. 32, pars. 157.42-12(d), (e).\nThe proposed resolution purports to both indemnify 'the individual defendants and allow their legal expenses to be paid as incurred. Defendants\u2019 argument assumes that even though an indemnification resolution, as provided in paragraph (d), has been passed, the individual defendants would receive no funds without first signing an undertaking as required in paragraph (e). In advancing this argument, defendants have apparently interpreted the statute to (1) allow funds to be advanced under paragraph (e) only if a finding has been made that the litigant has met the standard of conduct required by paragraphs (a) or (b) and (2) even though an indemnification resolution pursuant to paragraph (d) has been adopted, funds may be dispersed prior to some type of resolution of a dispute only if the litigant signs an undertaking as provided in paragraph (e).\nWe find paragraphs (d) and (e) to be completely independent and procedurally unrelated. There is nothing in the explicit language of the two paragraphs which makes one a precondition to the other. Paragraph (d) involves two steps. First, a determination as to the eligibility under the requisite standard of conduct for indemnification under (a) and (b); and second, an authorization of indemnification which includes a review of the reasonableness of the expenses and the financial ability of the corporation to make the payments. (See Changes in the Model Business Corporation Act Affecting Indemnification of Corporate Personnel, 36 Bus. Law. 99, 114 (1980).) We conclude there is no requirement that one being indemnified under paragraph (d) sign an undertaking to reimburse the corporation. Whether in fact either making a determination as to eligibility, or the authorization of the disbursement of funds, is appropriate prior to some degree of resolution of the underlying dispute, we need not and do not resolve at this time.\nParagraph (e) merely states that the board of directors may authorize an advancement of expenses, provided the requisite undertaking is signed by the litigant. Nothing in the paragraph limits the board of directors\u2019 discretion. Indeed, there is less need, since, by the terms of the undertaking, any funds which are advanced must be repaid unless it is ultimately determined that the litigant is \u201centitled\u201d to indemnification. We understand \u201centitled\u201d to refer to when a litigant must be indemnified because he has been \u201csuccessful\u201d as defined in paragraph (c) or has been permissibly indemnified under (a) or (b).\nOur conclusion that advancements of funds under paragraph (e) are not preconditioned by any finding required in paragraph (d) is buttressed by other authority. The Illinois indemnification provision was copied directly from the Delaware statute (Delaware Code Annotated, Title 8, sec. 145 (1982 cumulative supp.). (Transcription of House proceedings, May 18, 1977, at 58-62.) Section 4A of the Model Business Corporation Act (Model Act) (Sebring, Recent Legislative Changes in the Law of Indemnification of Directors, Officers and Others, 23 Bus. Law. 95, 111-13 (1967)) (hereinafter Sebring) provided in subsection (e) that expenses may be paid in advance of a final settlement of the legal dispute \u201cas authorized in the manner provided in subsection (d).\u201d (Emphasis added.) (The Delaware Code initially provided \u201cas authorized by the board of directors in the manner provided in subsection (d).\u201d (Emphasis added.) (Sebring, at 105.)) The comments and the Code make clear that in the Model Act subsection (e) required that the board make a finding, on the basis of facts available to them, that the necessary standards of conduct for indemnification had been met before advancements could be made. Sebring, at 105.\nThe Model Act has since been revised because \u201cin many instances it proved unworkable\u201d because of its requirement that a determination be made in advance that a person had met a certain standard of conduct. (Changes in the Model Business Corporation Act Affecting Indemnification of Corporate Personnel, 36 Bus. Law. 99, 114 (1980).) The new provisions in the Model Act require a finding that the facts known at the time of the approval of the advancement do not establish that indemnification is impermissible. There is no longer any tie in the Model Act between the sections which were old subsections (d) and (e).\nSometime between its initial adoption of language similar to the Model Act and 1975, Delaware changed its version of the Model Act subsection (e) to read \u201cas authorized by the board of directors in the specific case,\u201d thus omitting the link to subsection (d). This was how the Delaware statute read when copied by Illinois.\nThere are seven States besides Illinois and Delaware which have, or at one time had, adopted the same language: Alaska, Kansas, Maine, Missouri, Oklahoma, (Model Business Corporation Act Annotated sec. 5, at 56 (1973 Supp.); Maryland and Ohio (Model Business Corporation Act Annotated sec. 5, at 90 (1977 Supp.)). Maryland initially adopted the Model Act version. Then in 1976 it adopted the language in the present Illinois and Delaware codes. The Maryland annotated statutes provided this comment:\n\u201cChapter 567, Acts of 1976, amended \u00a72 \u2014 418(f) [corresponding to paragraph (e) of the Illinois statute] to simplify the procedure for advances. As amended, the section provides that advances against expenses incurred by a corporate officer may be made by the corporation, without any prior determination procedure, if the corporation receives an undertaking by the officer to repay the advance should it not be ultimately determined that he is entitled to be indemnified. Ultimate indemnification still requires the necessary findings required by \u00a72 \u2014 418(e) [corresponding to paragraph (d) of the Illinois statute].\u201d (Emphasis added.) Md. Corp. & Ass\u2019ns Code Ann. sec. 2 \u2014 418, Comment (1982 Supp.).\nFrom the comments to the Model Act and the Maryland annotated statutes, we conclude that the language used in paragraph (e) of the Illinois indemnification statute was adopted in order to avoid the problems of requiring a determination of whether a particular standard of conduct was met before resolution of the dispute. Therefore, there are no statutory preconditions to a board of directors authorizing the advancement of funds under paragraph (e).\nFinally, we address one other misconstruction of the statute. Defendants argue that the term \u201cunless ordered by a court\u201d found in paragraph (d) empowers a court to prohibit a permissive indemnification. While a court may find grounds to limit indemnification, the authority does not come from paragraph (d). Rather, \u201cunless ordered by a court\u201d merely provides another procedure whereby a litigant may obtain permissive indemnification from a corporation.\nThe disputed injunction prohibits any action \u201cto indemnify and reimburse\u201d the individual defendants\u2019 litigation expenses. It is unclear whether the trial court meant to prohibit the advancement of funds for payments of legal expenses as they are incurred. Defendants have argued that because of the undertaking they will be required to sign in order to receive any funds from the corporation, plaintiff has an adequate remedy at law and will not be irreparably harmed if it is ultimately determined that the individual defendants are not to be indemnified. Defendants have not argued that plaintiff would not be irreparably harmed if the individual defendants were to be indemnified under paragraph (d), where no undertaking is required to be signed, nor have they argued they have met the criteria under (a) or (b). Therefore, defendants\u2019 objection to the injunction will be met if the injunction is modified so as to allow advancement of funds under paragraph (e) while still prohibiting indemnification under paragraph (d). Because of the peculiar circumstances and conflict of interest involved in the setting of a close corporation, we believe the trial court\u2019s preliminary enjoining of indemnification under paragraph (d), until resolution of the underlying dispute, is well founded. Inasmuch as the corporation may immediately enforce the undertaking required under (e) to retrieve any advanced funds, if the individual defendants are not \u201csuccessful on the merits or otherwise,\u201d plaintiff, through the corporation, has an adequate remedy at law if the individual defendants are ultimately found not to be entitled to indemnification.\nThe plaintiff only requested an injunction forbidding \u201cindemnification or reimbursement\u201d under (d) and on appeal does not contest the power of the corporation to advance funds, after the signing of the required undertaking, under (e). Therefore, the cause is remanded to the trial court with the instruction that the injunction be modified so as to allow the advancement of legal expenses under paragraph (e), but prohibit indemnification under paragraph (d), as provided in section 42.12 of the Business Corporation Act (Ill. Rev. Stat. 1981, ch. 32, par. 157.42 \u2014 12), pendente lite.\nAffirmed as modified. Remanded with directions.\nTRAPP and GREEN, JJ., concur.", "type": "majority", "author": "JUSTICE MILLER" } ], "attorneys": [ "Jefferson Lewis and Nolan Lipsky, both of Petersburg, for appellants.", "Jeffrey B. Levens, of Sturm & Levens, of Springfield, for appellee." ], "corrections": "", "head_matter": "TERRANCE L. JOHNSON, Plaintiff-Appellee, v. GENE\u2019S SUPERMARKET, INC., et al., Defendants-Appellants.\nFourth District\nNo. 4 \u2014 82\u20140806\nOpinion filed August 23, 1983.\nJefferson Lewis and Nolan Lipsky, both of Petersburg, for appellants.\nJeffrey B. Levens, of Sturm & Levens, of Springfield, for appellee." }, "file_name": "0295-01", "first_page_order": 317, "last_page_order": 326 }