Hausman v. Green et al

Filing 24

OPINION entered by Judge Sue E. Myerscough on 7/20/2018. Defendants Todd Green and Joshua Wagoner's Objection to Magistrate's Report and Recommendation, d/e 22 , joined by The Gold Center, Inc., Illinois Depository Corporation, and Illino is Armored Transport, Inc., d/e 23 is OVERRULED. The Court ACCEPTS the Report and Recommendation, d/e 21 . The Motion to Dismiss, d/e 16 filed by Defendants Green and Wagoner and joined by the Corporate Defendant, d/e 17 is GRANTED IN PART and DENIED IN PART. The Court dismissed Plaintiff's prayer for a penalty under 805 ILCS 5/7.75(d) in Count II but otherwise denies the Motion. Defendants shall file an Answer on or before 8/3/2018. (SEE WRITTEN OPINION) (MAS, ilcd)

E-FILED

Monday, 23 July, 2018 01:26:47 PM
Clerk, U.S. District Court, ILCD

IN THE UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
JAMES R. HAUSMAN,

)
)
Plaintiff,
)
)
v.
)
)
TODD GREEN; JOSHUA WAGNER; )
THE GOLD CENTER, INC., an
)
Illinois corporation; ILLINOIS
)
DEPOSITORY CORPORATION,
)
an Illinois corporation; and
)
ILLINOIS ARMORED TRANSPORT, )
INC., an Illinois corporation,
)
)
Defendants.
)

No. 3:18-CV-03013

OPINION
SUE E. MYERSCOUGH, U.S. District Judge.
This cause is before the Court on the objection (d/e 22) to
U.S. Magistrate Judge Tom Schanzle-Haskins’ Report and
Recommendation (d/e 21) filed by Defendants Todd Green and
Joshua Wagoner and joined by The Gold Center, Inc., Illinois
Depository Corporation, and Illinois Armored Transport, Inc. (the
Corporate Defendants) (d/e 23). The Objection is overruled and
the Court ACCEPTS the Report and Recommendation. The Motion
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to Dismiss (d/e 16) filed by Defendants Green and Wagoner and
joined by the Corporate Defendants (d/e 17) is GRANTED IN PART
and DENIED IN PART. The Court dismisses Plaintiff’s prayer for a
penalty under 805 ILCS 5/7.75(d) in Count II but otherwise denies
the Motion.
I. INTRODUCTION
The Court adopts the Statement of Facts set forth in the
Judge Schanzle-Haskins’ Report and Recommendation. In sum,
the Complaint alleges that, in 2013, Plaintiff entered into a
transaction to sell 80% of the stock in the Corporation Defendants
to Green. As part of the transaction, the Corporate Defendants
leased from Plaintiff the real estate on which the corporations
operated on a five-year lease, with options to renew. The lease also
gave Green an option to purchase the property. Green transferred
a 5% equitable or beneficial interest in the Corporate Defendants
to Wagoner, who became the new manager of the Corporate
Defendants. Plaintiff, Green, and Wagoner are members of each
corporation’s board of directors. Plaintiff alleges that Green and
Wagoner mismanaged the Corporate Defendants, misappropriated
assets, engaged in transactions in violations of law, and engaged in
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other tortious conduct to the detriment of the Corporate
Defendants.
On April 14, 2015, Green filed suit in Sangamon County
Circuit Court against Plaintiff seeking specific performance on his
option to purchase the property. Plaintiff filed an affirmative
defense and counterclaim in response. The counterclaim alleged
that Green breached various provisions of the Shareholder’s
Agreement and Lease, including that Green failed to comply with
the Business Corporation Act, 805 ILCS 5/7.75, by denying
Plaintiff complete access to the books and records of the Corporate
Defendants.
On January 25, 2017, Green filed a motion to voluntarily
dismiss without prejudice the state court case. On March 10,
2017, the state court granted the motion to voluntarily dismiss
and made the following docket entry:
03/10/2017

Entry regarding motion to dismiss
Signed Judge: MADONIA
Present the Plaintiff by Attorney Myers.
Plaintiff’s Motion to Voluntarily Dismiss
Complaint without prejudice is granted.
Judge: MADONIA Clerk: N
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Civil Division Case Closed
Status: Cause Stricken Report:
Terminated Mar 10, 2017
Pl. Resp., Ex. 1 State Court Docket (d/e 20-1).1
On January 26, 2018, Plaintiff filed his Complaint in this
Court. In Count I, brought pursuant to Section 12.56 of the
Illinois Business Corporation Act, Plaintiff asks the Court to either
order dissolution of the Corporate Defendants or order Defendants
to purchase Plaintiff’s stock in the Corporate Defendants at fair
market value because Green and Wagoner are acting in a manner
that is illegal, oppressive, or fraudulent and are misapplying or
wasting corporate assets. In Count II, brought pursuant to Section
7.75 of the Business Corporation Act, Plaintiff asks for a writ of
mandamus requiring Defendants to produce the requested records
for examination and a penalty of 10% of the value of the shares
owned by Plaintiff in the Corporate Defendants.
In March 2018, Defendants Green and Wagoner filed a
Motion to Dismiss and/or Stay Proceedings (d/e 16), which the

The Court can take judicial notice of state court dockets. See In re Salem,
465 F.3d 767, 771 (7th Cir. 2006) (taking judicial notice of state court
dockets).
1

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Corporate Defendants joined (d/e 17). Defendants assert that
Plaintiff’s state court counterclaim remains pending and, therefore,
this Court should abstain from exercising its jurisdiction over
Count I pursuant to the Colorado River doctrine. See Colorado
River Water Conservation Dist. v. United States, 424 U.S. 800
(1976).

Defendants further assert that the Court lacks subject

matter jurisdiction to hear the claim in Count III brought under
Section 7.75 of the Business Corporation Act.
On May 18, 2018, this Court referred the motions to Judge
Schanzle-Haskins for a Report and Recommendation. On June 8,
2018, Judge Schanzle-Haskins filed a Report and
Recommendation recommending that this Court dismiss Plaintiff’s
prayer for a penalty under 805 ILCS 5/7.75(d) in Count II but
otherwise deny the Motion. On June 21, 2018, Defendants Green
and Wagoner filed objections (d/e 22) to the Report and
Recommendation. The Corporate Defendants joined the objections
(d/e 23).
II. LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 72(b)(3), the
Court Amay accept, reject, or modify the recommended disposition;
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receive further evidence; or return the matter to the magistrate
judge with instructions.@ Fed. R. Civ. P. 72(b)(3). The Court
reviews de novo any part of the Report and Recommendation to
which a proper objection has been made. Fed. R. Civ. P. 72(b)(3).
III. ANALYSIS
A.

The Court Will Not Stay or Dismiss this Action Under the
Colorado River Abstention Doctrine Because No Parallel
Suit is Pending in State Court
Defendants object to Judge Schanzle-Haskins

recommendation that the Court deny the motion to dismiss or stay
these proceedings pursuant to the Colorado River abstention
doctrine.
Under the Colorado River abstention doctrine, a court may, in
exceptional circumstances, dismiss or stay a proceeding when a
parallel proceeding is pending in state court. See Deb v. SIRVA,
Inc., 832 F.3d 800, 814 (7th Cir. 2016); Freed v. J.P. Morgan
Chase Bank, N.A., 756 F.3d 1013, 1018 (7th Cir. 2014).
Defendants assert that Plaintiff’s counterclaim in state court
is a parallel proceeding. Defendants argue that, although Green
voluntarily moved to voluntarily dismiss his claim against Plaintiff
in the state case, that dismissal did not affect Plaintiff’s pending
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counterclaim. Defendants cite 735 ILCS 5/2-1009(d), which
provides that the voluntary dismissal of the plaintiff’s action does
not dismiss a pending counterclaim.
Despite the language of the statute, the state court judge
closed the case and ordered the cause struck. No further action
has occurred in the state court case since that action. Because
the state court case is closed, no parallel proceeding is currently
pending. While the state court judge’s action of closing the case
may have been incorrect under Illinois law, the fact remains that
no state court proceeding is currently pending. Therefore,
Defendants’ request that the Court stay or dismiss the proceedings
under the Colorado River abstention doctrine is denied. See
Document Generation Corp. v. AllMeds, Inc., No. 07-841-GPM,
2009 WL 2848997, at *4 (S.D. Ill. Sept. 1, 2009) (finding the
Colorado River abstention doctrine did not apply where there was
no parallel suit pending in state court).
B.

The Court Has Jurisdiction to Order the Writ of
Mandamus Under 805 ILCS 5/7.75
On Count II, Judge Schanzle-Haskins recommended that this

Court dismiss Plaintiff’s prayer for a penalty under 805 ILCS
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5/7.75(d) but otherwise deny the motion to dismiss Count II. See
Report and Recommendation at 10 (noting that federal courts do
not exercise jurisdiction to enforce state penalty statues, a point
Plaintiff conceded). Defendants object to the portion of the
Recommendation finding that this Court has jurisdiction to enforce
the remaining provisions of the Section 7.75. Defendants point to
the provision in Section 7.75 that purportedly limits jurisdiction of
to state court:
(c) If the corporation refuses examination, the
shareholder may file suit in the circuit court of the
county in which either the registered agent or principal
office of the corporation is located to compel by
mandamus or otherwise such examination as may be
proper.
805 ILCS 5/7.75(c). According to Defendants, this statute, along
with the lack of cases where a federal court has granted Section
7.75 relief, show that this Court lacks a jurisdictional basis for
Count II.
However, “no state may contract jurisdiction created by an
Act of Congress.” Albert Trostel & Sons Co. v. Notz, 679 F.3d 627,
629 (7th Cir. 2012) (interpreting Wisconsin’s corporate code);
G.H.A. Lock Joint, Inc. v. Alexander Gammie Assocs, No. 86 C 457,
Page 8 of 10

1986 WL 8052, at *4 (N.D. Ill. July 15, 1986) (noting that federal
courts have “uniformly rejected state efforts to circumscribe their
diversity jurisdiction by creating state actions enforceable only in
state courts). Therefore, because the requirements of diversity
jurisdiction are met here—Plaintiff is a citizen of Wisconsin and
Defendants are citizens of Illinois and the amount in controversy
exceeds $75,000—this Court has a jurisdictional basis for Count
II. In addition, although the parties and the Court have found no
federal cases where a federal court granted relief under Section
7.75 of the Illinois Business Corporation Act, the Seventh Circuit
did review a claim seeking to enforce the right to inspect books and
records under Section 7.75. See Hess v. Reg-Elle Mach. Tool
Corp., 423 F.3d 653, 665-66 (7th Cir. 2005) (wherein the court did
not address jurisdiction but considered a Section 7.75 claim on the
merits).
IV. CONCLUSION
For the reasons stated, Defendants Todd Green and Joshua
Wagoner’s Objection to Magistrate’s Report and Recommendation
(d/e 22), joined by The Gold Center, Inc., Illinois Depository
Corporation, and Illinois Armored Transport, Inc. (d/e 23) is
Page 9 of 10

OVERRULED. The Court ACCEPTS the Report and
Recommendation (d/e 21). The Motion to Dismiss (d/e 16) filed by
Defendants Green and Wagoner and joined by the Corporate
Defendants (d/e 17) is GRANTED IN PART and DENIED IN PART.
The Court dismisses Plaintiff’s prayer for a penalty under 805 ILCS
5/7.75(d) in Count II but otherwise denies the Motion. Defendants
shall file an Answer on or before August 3, 2018.
ENTERED: July 20, 2018
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE

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