Tag: Illinois Law

Administrative Dissolution May Breach a Company’s Third-Party Contracts

Under Illinois law, corporations and limited liability companies (“LLCs”) are required to file annual registrations with the Illinois Secretary of State in order to maintain their entities in good standing.  Pursuant to the Limited Liability Company Act (the “LLC Act”), the Secretary of State may administratively dissolve an LLC if it fails to timely file its annual registration, mirroring the requirement imposed upon corporations in the Business Corporation Act (the “Corporation Act”).

If a company is administratively dissolved, the company will be reinstated upon the filing of the outstanding annual report(s) and an application for reinstatement, along with payment of all outstanding taxes and fees.  Upon reinstatement, the actions made by the company during the period of administrative dissolution are “ratified and confirmed” pursuant to the “relation-back” provisions of the LLC Act or the Corporation Act.

Recently, a provision of the LLC Act was examined by the Illinois Appellate Court in CF SBC Pledgor 1 2012-1 Trust v. Clark/School LLC, 2016 IL App (4th) 150568 (Sep. 8, 2016).  In this case, the Plaintiff, a Delaware mortgage trust, assumed a mortgage and security interest in an eight-building apartment complex which was owned by the defendant, Clark/School LLC.  Under the security agreement, the loan was made on the lender’s reliance of the Defendant mortgagor’s “continued existence” as an LLC, including “all things necessary to preserve and maintain [its] existence and to ensure its continuous right to carry on its business.”  The Defendant unfortunately failed to timely file its annual registration with the Illinois Secretary of State, ultimately leading to its administrative dissolution in December 2013.

Due to the Defendant’s administrative dissolution, the Plaintiff initiated a mortgage foreclosure action against the Defendant for failing to “preserve and maintain its existence” as an LLC.  The lower court determined, and the Illinois Appellate Court subsequently affirmed, that the Defendant committed an event of default by failing to maintain its status in good standing and held for the Plaintiff.  The Defendant unsuccessfully argued that the relation-back provision of the LLC Act prevented the Defendant from liability under the security agreement because it validated any actions that were taken from the date of the Defendant’s dissolution through the date of its reinstatement by the Secretary of State.

The predicament in CF SBC Pledgor was a novel issue under established Illinois LLC law; thus, the Illinois Appellate Court looked to precedent under the Corporation Act.  The relation-back application of the Corporation Act only pertained to ratification of the corporation’s actions; however, it did not automatically protect the corporation from possible breaches under third-party contracts.  Looking to the Corporation Act, the Court found that the relation-back provision will not “impose a legal fiction that belies actual real world facts.”

In that regard, a company cannot use the relation-back provision of its respective governing law in order to escape liability for committing a breach in a contractual agreement whereby the contracting party is relying upon the company to maintain its “continued existence” as a legal entity in good standing with the Secretary of State.

A company should pay prudent attention to its required filings and its obligations under its third-party contracts so as not to inadvertently breach such contracts.  Otherwise, as was the case in CF SBC Pledgor  the consequences may be harsh.

For more information on this topic or how you can protect your corporation or limited liability company, please contact:

Pamela Szelung at:

pszelung@lgattorneys.com or 312-368-0100.

Protecting Your Business From Trolls: Internet Anonymity is a Thing of the Past

The internet has long been a safe harbor for trolls and ne’er-do-wells of all sorts to unleash their scorn on whatever unsuspecting business lands in their crosshairs that day.  Yelp, Glassdoor and many similar web-based services provide a valuable mechanism for consumers to rate companies based on their experiences; but they also provide a virtual soapbox from which the less scrupulous can publish false information and materially damage a company’s reputation.

An actionable defamatory statement arises where there is an unprivileged publication of a false statement, made to a third party, that causes damages. See Solaia Tech., LLC v. Specialty Pub. Co., 221 Ill. 2d 558, 579, 852 N.E.2d 825, 839 (Ill. 2006).  By providing a voice to the masses, the internet has made it easier than ever before to publish false statements to third parties and it is now well established that statements made online can be the basis of a defamation action. See Hadley v. Doe, 2015 IL 118000, 34 N.E.3d 549 (Ill. 2014).

But how do you discover the secret identity of AngryEmployee546 who is presently scouring the internet for additional websites to tell the world that you steal your customer’s money?  In Illinois, one can use a pre-suit discovery tool known as a Rule 224 Petition. A Rule 224 Petition allows the petitioner to request information from the entity that owns the website that is publishing the offending remarks.  Such information can include all the data that the website operator collects from the poster. At a minimum, this usually includes an IP address and an email address and depending on the website, may include much more.  From there, it is generally possible to connect the dots to the offending poster.

In order to sustain a Rule 224 Petition and discover the identity of a poster, the petitioner must present sufficient allegations of a defamation claim to overcome a motion to dismiss that is automatically imposed by the court.  Id.  This means that a petitioner must effectively plead all of the elements for a claim for defamation on the face of the petition in order to obtain the information it seeks.

The one of the biggest hurdles for sustaining a defamation claim for internet published statements is that the statement is an opinion, and thus constitutionally protected speech.  Opinion statements, even if untrue, are not defamatory because they are constitutionally protected under the First Amendment.

Opinion statements also make up a large portion of negative online posts.  For example, if you were to write a review of restaurant and state that the service was slow, the food was terrible and the experience was unpleasant, such statements, even if totally false, are arguably just your opinion and not defamatory.  Whereas if you said that you saw the cook return to work without washing his hands and then saw the server spit in your food, these objectively untrue facts could well be defamatory.

Despite the hurdles, Illinois law provides a mechanism to find out who published defamatory remarks about you or your business so that you can protect your image, should the need arise.  If you or your business has been targeted by false online statements and you wish to investigate your options, please contact:

Robert G. Cooper at:

rcooper@lgattorneys.com or 312-368-0100.

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