Civil Litigation FlashPoints May 2013

The Illinois Business Corporation Act: The Survival Provisions of 805 ILCS 5/12.80 Do Not Apply to Claims That Accrue After a Corporation Dissolves

The Illinois Appellate Court, First District, recently reviewed the Illinois Business Corporation Act and the Illinois Supreme Court’s decision in Pielet v. Pielet, 2012 IL 112064, 978 N.E.2d 1000, 365 Ill.Dec. 497, to determine whether a dissolved corporation had the legal capacity to bring claims that accrued after the corporation legally dissolved. In A Plus Janitorial Co. v. Group Fox, Inc., 2013 IL App (1st) 120245, A Plus Janitorial Company, a professional cleaning services company, brought a lawsuit against Group Fox and Wojciech Rusin, even though A Plus was a dissolved corporation at the time it filed the lawsuit. The trial court dismissed the lawsuit for lack of standing. The First District affirmed dismissal, but on other grounds. It held that A Plus lacked “legal capacity to sue” based on the plain terms of §12.80 of the Business Corporation Act of 1983, 805 ILCS 5/12.80.

In 2004, A Plus and Group Fox, a real estate property management company, entered into a maintenance contract that “automatically extended and renewed” every two years on December 1. 2013 IL App (1st) 120245 at ¶4. Under certain conditions, either party could prevent the automatic renewal and terminate the contract by serving proper notice. The maintenance contract also barred Group Fox from hiring — during the life of the contract and for one year thereafter — any individual who worked for A Plus. Rusin, an A Plus employee, was bound by a separate employment agreement with A Plus that barred him from working for any company that contracted with A Plus for cleaning services like, for instance, Group Fox. 

In early 2008, A Plus voluntarily dissolved as a corporation when it filed articles of dissolution with the Illinois Secretary of State. Nine months later, the maintenance contract’s December 1, 2008, renewal date passed without either party providing the required written notice of termination. In June 2009, Group Fox terminated the maintenance contract with A Plus and then hired Rusin to perform cleaning services for Group Fox. 

A Plus filed a verified complaint setting forth the following three counts: Count I — Breach of Contract against Group Fox for terminating the maintenance contract and employing Rusin in June 2009; Count II — Breach of Contract against Rusin for breaching his employment agreement with A Plus by undertaking employment with Group Fox; and, Count III — Tortious Interference with a Contract against Group Fox for interfering with the employment agreement between A Plus and Rusin. In response to the complaint, both defendants filed motions to dismiss pursuant to §2-619 of the Code of Civil Procedure, 735 ILCS 5/2-619. 

The trial court initially denied the motions to dismiss because it relied on a faulty affidavit from the president of A Plus. This affidavit stated that A Plus had merged with another entity, A+ Janitorial & Supply, Inc., prior to the dissolution of A Plus in early 2008. The trial court reasoned that under §11.50 of the Business Corporation Act of 1983, 805 ILCS 5/11.50, “ ‛the surviving corporation from a merger has all the rights and power’ previously belonging to the non-surviving corporations.” 2012 IL App (1st) 120245 at ¶11. Accordingly, the trial court found that the claims could still be brought against Group Fox and Rusin because A Plus’ apparent merger with A+ Janitorial prior to the March 2008 dissolution raised a genuine issue of material fact sufficient to preclude dismissal.

Subsequently, Group Fox and Rusin filed a joint motion to reconsider and attached as exhibits the records of the Illinois Secretary of State to demonstrate no merger ever took place between A Plus and A+ Janitorial. Relying on this new information, the trial court granted the joint motion and dismissed A Plus’ complaint with prejudice pursuant to §2-619 of the Code of Civil Procedure, 735 ILCS 5/2-619. In its order granting dismissal, the trial court found that “A Plus did not legally merge with [A+ Janitorial]” and therefore remained “a dissolved corporation prior to any alleged breaches for which it seeks relief.” 2012 IL App (1st) 120245 at ¶12. The trial court reasoned that as a dissolved corporation, “ ‛[A Plus] could not be party to the automatic renewal’ of the maintenance agreement in December 2008.’  Thus, the trial court found that A Plus lacked standing to maintain the claims pled against Group Fox and Rusin in its complaint.” Id.

On appeal, A Plus argued its corporate dissolution did not bar the filing of its claims against Group Fox and Rusin. A Plus relied exclusively on Pielet v. Pielet, 407 Ill.App.3d 474, 942 N.E.2d 606, 347 Ill.Dec. 403 (2d Dist. 2010) (Pielet I), aff’d in part, rev’d in part, 2012 IL 112064, for the proposition that causes of action based on rights existing prior to dissolution may accrue after corporate dissolution. In Pielet I, the Second District relied on a novel interpretation of §12.80 of the Business Corporation Act. Pielet I, 942 N.E.2d at 623 – 629. That section states: 

The dissolution of a corporation… shall not take away nor impair any civil remedy available to or against such corporation, its directors, or shareholders, for any right or claim existing, or any liability incurred, prior to such dissolution if action or other proceeding thereon is commenced within five years after the date of such dissolution. 805 ILCS 5/12.80.

The Second District concluded that as long as the “right” or “liability” underlying the claim existed prior to dissolution, the claim could still be brought even if the claim itself accrued post-dissolution. 942 N.E.2d at 627. Therefore, according to A Plus, because the obligations under the maintenance agreement and employment agreement existed pre-dissolution, it still could bring its lawsuit despite the fact that the causes of action accrued post-dissolution.

However, the Illinois Supreme Court reversed the decision in Pielet I on this very issue. Pielet, supra, 2012 IL 112064 at ¶59 (Pielet II). In Pielet II, the court reviewed a previous line of federal and state court decisions interpreting §12.80 and adopted a bright-line rule regarding which claims survive after dissolution. The law is now clear in Illinois that in order for a claim to survive under §12.80, the cause of action has to “actually accrue prior to dissolution.” A Plus, supra, 2013 IL App (1st) 120245 at ¶20. In affirming dismissal of the complaint, the court in A Plus held, “As the decision in Pielet II and the previously existing line of precedent indicate, any rights, claims, or liabilities preserved by section 12.80 still must be raised in a cause of action that actually accrued pre-dissolution.” 2013 IL App (1st) 120245 at ¶21.

Practitioner’s Note: The A Plus court stated that the trial court decided the case “as an issue of standing” and that the parties similarly argued it as such on appeal. 2013 IL App (1st) 120245 at ¶15. However, the court held that this case “does not present an issue of standing” and advised that the proper vehicle for dismissal in this type of case is through §2-619(a)(2) — that is, lack of “legal capacity to sue or . . . be sued.” Id., quoting 735 ILCS 5/2-619(a)(2). Therefore, motions to dismiss a complaint under §12.80 of the Business Corporation Act should be framed as a request for dismissal due to “lack of capacity to sue” rather than for “lack of standing.”