Merrill Lynch settled the Rosenberg case, supra. As part of that settlement, Merrill Lynch agreed that employees who allege employment discrimination claims after June 1, 1998 may now have access to a judicial forum.
In Martens v. Smith Barney, Inc., 181 F.R.D. 251 (S.D. N.Y. 1998), the court approved a two step alternative dispute resolution process to address employment related disputes. First a mediation model is used. If mediation is unsuccessful arbitration is commenced before an independent (non-securities industry SRO) three member arbitration panel.
Reading the "handwriting on the wall" following the Merrill Lynch and Smith Barney settlements, some large brokerage firms like PaineWebber, Inc., have begun to implement voluntarily, an alternative dispute resolution system for their employees. See, "PaineWebber Offers Workers Choices of Dispute Resolution" The Legal Intelligencer, (December 7, 1998).5
V. Conclusion
Since its enactment in 1925, the Federal Arbitration Act has been a clear expression of Congressional policy that favors the resolution of disputes through the arbitration process. The United States Supreme Court has echoed this policy time and again in its decisions on arbitration law. See e.g., Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985).
The Ninth Circuit's Duffield decision, supra, appears to be an anomaly especially in light of the U.S. Supreme Court's Gilmer opinion. See also, Desiderio v. NASD, 191 F.3d 198 (2nd Cir. 1999), expressly rejecting Duffield. But there is a degree of "tweaking" going on in the judiciary, e.g. Rosenberg, supra. A number of courts are feeling their way through the precedent distinguishing Gilmer. See e.g., Martens v. Smith Barney, Inc., 1999 U.S. Dist. LEXIS 18750 (S.D. N.Y. December 3, 1999) and supra; Sobol v. Kidder Peabody & Co., Inc., 49 F.Supp. 208 (S.D. N.Y. 1999); South Trust Securities, Inc. v. McClellan, 730 So. 2d 620 (Ala. S.C., 1999), (State discrimination laws); Thiell v. Merrill Lynch Pierce Fenner & Smith, Inc., 59 F.Supp. 2d 1050 (S.D. CA 1999), (ADEA and OWBPA); Williams v. Cigna Financial Advisors, Inc., 1999 U.S. App. LEXIS 31992 (5th Cir. December 6, 1999).
Moreover, with the development and wider acceptability of alternative dispute resolution systems, securities brokerage firms, management and employees are fashioning their own dispute resolution mechanisms and the securities industry SRO's and the SEC are taking a step back from regulating the process. While arbitration of securities industry employment disputes is in a state of flux, most signs point to a satisfactory solution being engineered by the industry with a little guidance from the courts.6
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1 There have also been developments in the arbitration of labor disputes following Gilmer, but they are outside the scope of this article.
2 See, Charkes, Mandatory Arbitration of Statutory Discrimination Claims, 4 The Securities Reporter, (American Bar Association, Section of Business Law). Issue 4, at 18 [Winter, 1999) [hereinafter Charkes].
3 Id. at 20, (citations omitted).
4 Id. at 21.
5 Charkes, at 24, fn. 33.
6 The Chicago and Boston Stock Exchanges are amending their arbitration rules to follow suit.
Early stage venture finance: sources of data for the "angel" round
By William Alexander Price, Attorney at Law and Adjunct Professor,High Technology Entrepreneurship, Illinois Institute of Technology
"Angel" finance deals, according to "The Process and Analysis Behind ACE-Net," a policy paper on the U.S. Small Business Administration Website, number about 650,000, and involve about ten private investors each, at about $65-66,000 per investor. They are an alternative that usually is attractive when friends and family money runs out for deals not yet large enough to seek venture capital fund financing. Finding angel investors, and making sure they meet SEC standards for persons who may be solicited without public offering registration, is always an interesting challenge. The articles referenced here may be of some assistance.
Articles about angel capital investors: http://www. StartUpUniversity.com/angel/archives_angel.html
David Evanson: "Why Use Angel Investors," from Home Business Magazine: http://www.homebusinessmag. com/StoryPage.ASP?ChanID=BS&StoryID=20000119
Sylvia Sansoni "Burned Angels," from Forbes Magazine: http://www.forbes.com/forbes/99/0419/6308182a.htm
Jeffry L. Seglin, "What Angels Want," from Inc. Magazine: http://www.inc.com/articles/details/0,6378, ART1121_CNT53,00.html
Jonathan Silver, "ABC's of Venture Capital and Angel Investors," from the Washington Business Journal: http:// www.amcity.com/washington/stories/1997/03/17/smallb3.html
From "The Business Resource Center": http://www.morebusiness.com/running_your_business/financing/d907964881.brc
Jill Fraser, "Networking for Angels," from Inc Magazine: http://www.inc.com/articles/details/0,6378, ART1679_CNT53,00.html
Stephanie Gruner, "Conversations with Angels," from Inc Magazine: http://www.inc.com/articles/details/ 0,6378,ART1839_CNT53,00.html
Gruner, Stephanie, "The Trouble With Angels," from Inc Magazine: http://www.inc.com/articles/details/0,6378, ART865_CNT53,00.html
Gates, Stephanie, "Follow the Private Equity," from Red Herring Magazine: http://www.redherring.com/insider/1999/0129/vc-fundraising.html
References to these articles were gleaned by examining the section on "angels" of startupuniversity.com, another interesting location.
There are a wide variety of meetings and groups in Northern Illinois that provide opportunities for angel and other venture capital introductions, for review of venture plans, and for networking with other technology and startup entrepreneurs. If you want to be included on a mailing list for information on these and other high tech entrepreneurship issues, you can contact me at wpriceiit@hotmail. com.
Information contact for this article:
William A. Price
Attorney at Law and Adjunct Professor, High Technology Entrepreneurship And Business Law
Illinois Institute of Technology
201 E. Loop Road
Wheaton, IL 60187
630/682-06042
fax: 630/682-06010
email: wpriceiit@hotmail.com
Seventh Circuit applies Illinois Survival Statute to bar
shareholders' claims
By Donna J. Rolf, Arnstein & Lehr, Chicago
A recent Seventh Circuit case involves the Illinois Survival Statute and the issues a court will examine when analyzing claims brought more than five years after the dissolution of a corporation.
In Weiss v. Wark, No. 99-1735, 1999 WL 1269416 (7th Cir. Dec. 23, 1999), shareholders of a dissolved Illinois corporation brought a civil action individually and derivatively on behalf of the corporation.
Byron Weiss and Frank Pollack were former officers and shareholders of Overseas Development Corporation ("ODC"), collectively, the "Shareholders." ODC had entered into a joint-venture agreement with John Wark ("Wark") and Bushman Gold Company ("Bushman") to explore and develop mineral mines in two target areas in Guyana. Wark made offers to purchase ODC's interest in the joint-venture agreement and ODC rejected each offer. Neither Wark nor ODC ever formally withdrew from the joint venture. Nevertheless, Wark entered into agreements with other companies and began infringing on ODC's interests in the target areas. In December 1992 ODC was involuntarily dissolved. Nearly six years later, Weiss and Pollack sued Wark and his business associates claiming a breach of a mining agreement and tortious interference with the joint venture and with prospective economic advantage.
At issue on appeal was whether, as a question of Illinois law, the lawsuit should be dismissed under the limited post-dissolution survival provision in section 12.80 of the Illinois Business Corporation Act [805 ILCS 5/12.80] ("Section 12.80"). There was no dispute that ODC was involuntarily dissolved on December 1, 1992 and that this action was not brought until November 5, 1998, nearly six years after the dissolution.1 The Shareholders argued that the corporate survival statute did not bar their claims because they sought to enforce the joint-venture agreement on their own behalf as successors to ODC's assets, and not on ODC's behalf. The district court dismissed the action, holding that a group of fewer than all shareholders of a dissolved corporation was not entitled to assert claims derivatively on behalf of the corporation.2 The lower court also held that the Shareholders' attempt to redress the alleged injury was derivative because ODC and Bushman were the only parties identified in the joint-venture agreement.3 On appeal the Shareholders again asserted the claims were not time barred by section 12.80 because they were ODC's successors to the joint venture.4
As the Seventh Circuit makes clear, in Illinois, "any civil remedy" that may be asserted by or against a dissolved corporation, its directors or shareholders, survives for five years after the corporation's dissolution. The Illinois corporate survival statute, alters the common law rule that corporations can not be sued after dissolution.5 The purpose of the statute is to require the winding up and finalization of corporate affairs within five years.
Two classes of claims have been identified by the courts that may be asserted beyond the five-year statutory winding-up period even if they arose prior to dissolution: (1) shareholder claims based on individual injuries; and (2) corporate claims that were asserted, reduced to judgment or otherwise fixed at the time of dissolution.6 The second class of claims "devolves" with the assets to the shareholders when the corporation is dissolved.7 However, claims that remain unasserted at the time of dissolution do not pass to the corporation's shareholders.8
The Shareholders claimed that they were successors to ODC's joint-venture agreement and therefore suffered injury. However, as the court points out, their claims are derivative because they are grounded in the alleged injury to ODC that was the party to the agreement. Illinois law is clear that a derivative suit by former shareholders is governed by section 12.80 and the fact that shareholders may assert their own individual claims beyond the winding-up period "does not apply to derivative claims."9 According to the Seventh Circuit, the argument that ODC's unasserted claims are themselves corporate assets that devolve to the shareholders upon dissolution of the corporation would make section 12.80 meaningless. The Shareholders' claims did not fit the second class of claims that may be asserted beyond the five-year winding up period. ODC never obtained a judgment against the defendants that would allow the Shareholders to enforce their individual claims. Therefore, the benefits of the joint-venture agreement to which the Shareholders sought to succeed were indeterminate. Allowing unasserted corporate claims to proceed through as individual claims after the five-year period would defeat the purpose of section 12.80.
The court found that these claims were derivative in that they belonged to the corporation and should have been brought within the five-year survival period provided under Illinois law. Because they were not brought within the five-year period and they could not be asserted as individual claims, the Seventh Circuit upheld the trial court's dismissal of the claims.
In representing former shareholders of a dissolved Illinois corporation, all attorneys should be aware that any claims arising outside of the five-year winding up period will likely be barred by the Illinois Survival Statute unless the claims clearly fall within one of the two classes of exceptions. Similarly, Weiss v. Wark teaches that the Illinois Survival Statute also permits assertion of any civil remedy against its directors or shareholders for five years after the corporation's dissolution. (See, section 12.80.)
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1 1999 W.L. 1269416, at 2.
2 36 F.Supp.2d 805, 809.
3 Id. at 807.
4 1999 W.L. 1269416, at 2.
5 See, Canadian Ale Brewing Co. v. Joseph Schlitz Brewing Co., 629 F.2d 1183, 1185 (7th Cir. 1980), citing, 16A W. Fletcher, Cyclopedia of the Law of Private Corporations §8142 (1979 Rev. Vol. Richard P. Eickhoff).
6 See, Canadian Ale Brewing Co., supra, 629 F.2d at , 1185; Dubey v. Abam Building Corp., 266 Ill.App.3d 44, 46-48, 639 N.E.2d 215, 218-219 (1st Dist. 1994).
7 1999 W.L. 1269416, at 3 (Citations omitted.)
8 Id. (Citations omitted.)
9 Id.
Minutes of the Corporation, Securities and Business Law Section Council
Friday, March 10, 2000
Embassy Suites Hotel
600 North State Street
Chicago
The following members were present:
Zane Cohn Bill Kaplan
David Doyle James Moylan
Alan Jay Goldstein Gene Petersen
Brent Gwillim Robert Spadoni
Pat Holland Bob Wild
1. The meeting was called to order by Jay Goldstein.
2. Approval of Minutes--The minutes of the December 10, 1999 meeting were reviewed and unanimously approved.
3. Committee Reports.
(a) Newsletter--The second newsletter will be published very soon. Articles are still needed for the third and fourth newsletters.
(b) Continuing Legal Education/Update Seminars--John Doyle provided a report stating that the Business Law and Technology seminar has been scheduled for May 12, 2000 in Chicago; however, the seminar that was scheduled for May 5 in Collinsville was canceled due to a conflict at the proposed meeting site.
Jim Moylan summarized the agenda for the four-hour program "Effective Use of Alternative Dispute Resolution in Commercial Disputes" for the upcoming annual meeting.
(c) Legislation. John Doyle provided a report stating that HB 145 has been re-referred to the Rules Committee, and it is probably dead for this legislative session.
The following bills, which are summarized in Exhibit A, were discussed:
HB 477 and 478--The council acknowledged that it was unclear whether those bills sufficiently limit a limited partner's ability to withdraw. However, the council reaffirmed its support for the concept of strictly limiting a limited partner's ability to withdraw in order to be able to use Illinois limited partnerships for estate planning purposes.
HB 1744--The council reaffirmed its previous action to take no position.
HB 2991--The council decided to oppose because the corporate statutes were viewed as inappropriate vehicles to regulate the perceived problems. The council thought those problems would be better addressed in legislation dealing with deceptive trade practices.
HB 2997--The council took no position.
HB 3284 and 3285--Consideration of these bills was deferred until the next meeting.
HB 3838--The council decided to take no position since the council believed that the subject matter of the proposed legislation was not in the purview of the committee. Zane Cohn wished to oppose the bill.
HB 2997--The council took no position.
HB 3944--The council deferred consideration of this bill, which proposes a number of changes to the Illinois Securities Act of 1953, until the next meeting to allow further time for study. The council asked that staff liaison provide copies of the legislation.
SB 1330--The council unanimously opposed this bill which would shorten the time for potential franchisees to review the franchise disclosure statement.
SB 1422--Consideration was deferred until the next meeting and a summary will be sent before then.
Finally, everyone agreed that it would be helpful to send a brief summary with the bills that are still pending.
(d) There was no report from the joint SOS/CBA/ ISBA ULLCA/RULPA/RUPA Committee.
(e) Brent Gwillim reported that the Task Force on PPUPL had decided to wait until after the November elections to present the ISBA's petition regarding Supreme Court Rules 721 and 722. He also noted the continuing debate over multi-disciplinary practices and mentioned the articles which Jim Moylan and others had been circulating to the council.
(f) Case law update. David Doyle reported on two cases that were to be distributed. The first case, Brouwer v. Raffensperger, Hughes & Co., No. 99-1286, 7th Circuit, January 13, 2000, is a RICO case which held that an attorney who knew of, but did not participate in, the alleged conspiracy to commit a predicate act could be liable. This case is significant for lawyers and underwriters who may come to know of conspiracies of their clients or others. However, Jim Moylan noted that securities fraud is no longer one of the predicate acts required for a RICO case.
In the second case, American National Bank and Trust Co. of Chicago v. Mack, No. 1-98-4582, 1st District, February 3, 2000, the court held that a lender could not recover from a former partner of a law firm indebtedness which had been incurred after his resignation even though, pre-resignation, the partner had given the lender a continuing personal guarantee. Although the language of the guarantee permitted the lender to apply payments against indebtedness incurred in any order, the evidence indicated that the lender had uniformly applied payments against the oldest indebtedness first and, under that practice, all of the indebtedness incurred prior to the resignation had been paid.
(g) Liaisons to CBA Corporate Law and Securities Law Committees. Both Jay Goldstein and Pat Holland reported that their respective committees had been active and distributed samples of each committee's programming.
(h) Robert Spadoni reported on recent developments in the not-for-profit area.
(i) Technology Subcommittee. David Doyle reported that additional links had been added to the council's Website and the ISBA was exploring ways to cross-pollinate interest among the various section councils.
(j) Pro bono initiative. Jim Moylan noted that there was nothing to report.
(k) Tri-Bar Committee. Since the council has completed its review of the Tri-Bar Opinion Committee Report and opposes that report, that item is to be deleted from the agenda.
(l) Secretary of State's forms review. David Doyle reported that a number of forms were in the process of being revised and that the Secretary of State would seek legislation to permit revision of other forms. It is anticipated that by March 15, 2000 all limited liability company and corporate forms will be available through the Secretary of State's Internet site together with some guidelines as to the use of those forms.
(m) IRPTA amendments. Our consideration of this item has been completed and it is to be removed from the agenda.
4. There being no further business to come before the council, the meeting was adjourned at approximately 1:15 p.m.
___________________________
Zane M. Cohn, as Secretary
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