Chicago Business Litigation Lawyer Blog
Shareholder and LLC member disputes can be complex and contentious, especially when one party attempts a “freeze-out.” A freeze-out refers to excluding a shareholder or member from the decision-making process or the benefits of ownership. In Illinois, recent court decisions have shed light on the legal principles surrounding these disputes. In this blog post, we will explore some of these notable cases and the lessons they offer for those facing or involved in freeze-out situations.v
The most recent Illinois shareholder and member freeze-out cases include “Vanco v. Mancini”, which was decided on October 19, 2020, and “Albert Trostel & Sons Co. v. Notz”, which was decided on May 10, 2012. In “Vanco v. Mancini”, the court reaffirmed that minority shareholders are vulnerable to ‘freeze-outs’ or ‘squeeze-outs’, where the majority, for personal rather than legitimate business reasons, deprives the minority shareholder of his office, employment, and salary. An oppressed shareholder in a close corporation may seek a judicial remedy, including dissolution of the corporation.
The case of “Albert Trostel & Sons Co. v. Notz” involved a Wisconsin corporation’s action against a dissenting shareholder, an Illinois resident, seeking a determination of the fair value of the shareholder’s stock on the date of a freeze-out merger.
Other cases such as “Rexford Rand Corp. v. Ancel” decided in 1995, and “Small v. Sussman” from 1999, have also discussed the concept of freeze-outs in Illinois law. The former case held that even if a minority shareholder is a victim of an improper freeze-out, they should have relied on an oppressed shareholder suit against the corporation seeking damages or dissolution of the corporation. “Small v. Sussman”, meanwhile, held that the freeze-out merger was authorized by Illinois statute and the affected shareholder’s only entitlement was to the stock’s “fair value”.
The case of “Root Consulting, Inc. v. Insull”, decided on March 2, 2016, provides some insight into the duties of shareholders in a freeze-out situation. The court explained that a “freeze out” refers to “the use of corporate control vested in the statutory majority of shareholders or the board of directors to eliminate minority shareholders from the enterprise or reduce their voting power or claims on corporate assets to relative insignificance.” If a minority shareholder believes they have been frozen out, they have an obligation to seek judicial resolution rather than taking matters into their own hands.
Finally, “In re Midwest M & D Services, Inc.”, decided on July 17, 2023, explains that under Illinois law, a shareholder may bring an action on his own behalf against a corporate wrongdoer who has directly injured the shareholder.
These cases provide a snapshot of the legal landscape surrounding shareholder and member freeze-outs in Illinois.
Conclusion
Illinois court decisions involving shareholder and LLC member freeze-outs demonstrate the importance of fairness, transparency, and adherence to fiduciary duties and corporate formalities. Shareholders, LLC members, and corporate managers must understand their legal obligations and rights to navigate these disputes effectively.
If you find yourself involved in a freeze-out situation, seeking legal counsel from experienced attorneys who specialize in corporate law and dispute resolution is essential. These recent court decisions underscore the significance of seeking equitable remedies and pursuing fair resolutions when facing freeze-out tactics. By staying informed about these cases and the legal principles they establish, individuals and businesses can better protect their interests and promote equitable corporate governance.
Call one of our experienced freeze-out or squeeze-out attorneys if you are the victim of a freeze-out or squeeze-out at 630-333-0333 or contact us online here.