Stankiewicz, MD, FAAD v. DuPage Medical Group, Ltd.
Filing
48
MEMORANDUM Opinion and Order Signed by the Honorable John Z. Lee on 3/8/19. Mailed notice(ca, )
Case: 1:18-cv-03823 Document #: 48 Filed: 03/08/19 Page 1 of 11 PageID #:297
IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
KELLY STANKIEWICZ,
MD, FAAD,
Plaintiff,
v.
DUPAGE MEDICAL GROUP,
LTD., d/b/a DUPAGE MEDICAL
GROUP, an Illinois corporation,
Defendants.
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Case No. 18 C 3823
Judge John Z. Lee
MEMORANDUM OPINION & ORDER
Plaintiff Kelly Stankiewicz seeks a declaratory judgment, premised upon the
Illinois Business Corporation Act, 805 ILCS 5/1.01 et seq., that her previous employer,
the DuPage Medical Group (“DMG”), failed to pay her a fair value for her shares in
DMG upon her termination.
DMG has moved to dismiss the complaint pursuant to
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).
For the reasons provided
herein, DMG’s motion [19] is denied.
Factual and Procedural Background1
Stankiewicz, a dermatologist, was employed by DMG from September 1, 2011,
to the summer of 2017.
Compl. ¶¶ 24–25, 77, ECF No. 1.
In 2013, Stankiewicz
acquired 11,000 of DMG’s common shares, which the Shareholder Agreement
When reviewing a motion to dismiss, the Court assumes the alleged facts in the
complaint are true and draws all possible inferences in favor of Plaintiff. See Tamayo v.
Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). In addition to the complaint itself, on a
motion to dismiss, the Court may consider “documents attached to the complaint, documents
that are critical to the complaint and referred to in it, and information that is subject to
proper judicial notice.” Geinosky v. City of Chi., 675 F.3d 743, 745 n.1 (7th Cir. 2012).
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required DMG to repurchase upon termination of her employment.
Id. ¶¶ 27–28;
Pl.’s Ex. B, Shareholder Agreement §§ 1, 2(c).
Stankiewicz notified DMG on April 30, 2017, that she was voluntarily
terminating her employment contract, effective July 31, 2017. Compl. ¶ 32. This
notice complied with a provision of Stankiewicz’s Employment Agreement requiring
ninety days’ notice prior to termination by either Stankiewicz or DMG.
Id.; Pl.’s
Ex. A, Employment Agreement § 3.1(c).
A month before Stankiewicz’s chosen termination date, however, DMG’s Board
adopted an Equity Purchase Agreement to sell substantially all of DMG’s equity in
its subsidiary, DMG Practice Management Solutions LLC (“DMG-PMS”).
¶¶ 33–34.
Compl.
Stankiewicz received notice on July 7, 2017 of a shareholder meeting to
be held on July 27, and information on her right to dissent from the transaction under
the Illinois Business Corporation Act (“IBCA”), 805 Ill. Comp. Stat. 5/1.01 et seq.
Pl.’s Ex. D, Notice of Shareholder Meeting.
Id.;
On July 24, Stankiewicz asked her
supervisor to extend her employment until August 31, 2017.
Compl. ¶ 58.
Stankiewicz also reviewed a presentation from DMG’s management about the
proposed $1.45 billion transaction, which projected shareholder income from the sale
“in the hundreds of millions of dollars.”
Id. ¶¶ 64–65.
The day before the shareholder meeting, Stankiewicz emailed DMG’s CEO,
Michael Kasper, purporting to exercise her right to dissent from the sale pursuant to
805 Ill. Comp. Stat. 5/11.65.
Id. ¶ 66; see Pl.’s Ex. G.
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At the time of the vote, 3 out
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of 409 shareholders, including Stankiewicz, dissented from the sale.
Compl. ¶ 73.
Between July 28 and July 30, Stankiewicz twice sought confirmation from
Kasper that her employment had been extended to August 31, 2017.
Id. ¶ 76.
Kasper responded on July 31 that DMG had planned for her transition and that her
employment was ending that day as originally planned.
Id. ¶ 77, Pl.’s Ex. I.
Accordingly, Stankiewicz alleges that “[d]espite DMG’s previous agreement to
continue [her] employment through August 31, 2017, DMG involuntarily terminated
[her] employment on July 31, 2017, without prior notice or cause.”
Compl. ¶ 78.
On August 1, 2017, Stankiewicz received an $11,000 deposit from DMG
purporting to repurchase her shares per the Shareholder Agreement.
Id. ¶ 81.
Stankiewicz returned a check of the same value to DMG on August 4, demanding a
pro rata redemption of her shares out of the $1.45 billion merger.
sale of DMG-PMS was later consummated on August 15.
Id. ¶ 82. The
Id. ¶ 83.
Stankiewicz seeks a declaratory judgment that she was entitled to receive the
fair value of her shares as determined at the time of the DMG-PMS sale.
DMG has
moved to dismiss the claims for lack of standing under Rule 12(b)(1) and for failure
to state a claim pursuant to Rule 12(b)(6).
Legal Standard
I.
Rule 12(b)(1)
Under Rule 12(b)(1), a defendant may move to dismiss claims over which the
federal court lacks subject-matter jurisdiction, including claims for which the parties
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lack standing.
See Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443 (7th
Cir. 2009); Perry v. Vill. of Arlington Heights, 186 F.3d 826, 829 (7th Cir. 1999). In
ruling on a Rule 12(b)(1) motion, the Court must accept as true all well-pleaded facts
and may look beyond the jurisdictional allegations to evidence submitted on the issue
of subject-matter jurisdiction.
St. John’s United Church of Christ v. City of Chi., 502
F.3d 616, 625 (7th Cir. 2007). The Court must also draw all reasonable inferences
in the plaintiff's favor.
Id.
Article III standing requires the plaintiff to show a “personal injury fairly
traceable to the defendant’s allegedly unlawful conduct and likely to be redressed by
the requested relief.”
Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 678 (2016)
(quoting Allen v. Wright, 468 U.S. 737, 751 (1984)).
Article III “injury-in-fact” is a
concrete and particularized, actual or imminent invasion of a legally protected
interest.
Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992).
“[I]f the [litigant does]
not have standing, the Court is without authority to consider the merits of the action.”
Swan v. Bd. of Educ. of City of Chi., 956 F. Supp. 2d 913, 918 (N.D. Ill. 2013).
II.
Rule 12(b)(6)
To survive a motion to dismiss under Rule 12(b)(6), a complaint must “state a
claim to relief that is plausible on its face.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for
the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
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Additionally, when considering motions to dismiss, the Court accepts “all wellpleaded factual allegations as true and view[s] them in the light most favorable to the
plaintiff.”
Lavalais v. Vill. of Melrose Park, 734 F.3d 629, 632 (7th Cir. 2013). At
the same time, “allegations in the form of legal conclusions are insufficient to survive
a Rule 12(b)(6) motion.”
McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 885
(7th Cir. 2012) (citing Iqbal, 556 U.S. at 678). As such, “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not
suffice.”
Iqbal, 556 U.S. at 678.
Analysis
The parties’ positions hinge on a determination of Stankiewicz’s employment
and shareholding status at the time of the DMG-PMS sale and her corresponding
right to receive an appraisal of her share value under 805 Ill. Comp. Stat. 5/11.70.
Stankiewicz contends that she extended her employment until after the sale occurred,
thus preserving her right to dissent.
In the alternative, she contends that her right
to dissent and receive an appraisal survived her termination on July 31.
For its part, DMG argues that Stankiewicz’s employment was terminated on
July 31, thereby triggering the repurchase provision of the Shareholder Agreement
and voiding Stankiewicz’s ability to receive an appraisal as a dissenting shareholder
at the time of the later sale.
Further, DMG contends, because it already paid
Stankiewicz $11,000 for her shares pursuant to the Shareholder Agreement, she has
suffered no injury in fact for purposes of standing.
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I.
Standing
Standing pertains to the court’s jurisdiction and must be addressed before
discussing the merits of the 12(b)(6) motion.
See Steel Co. v. Citizens for a Better
Env’t, 523 U.S. 83, 94–95 (1998) (“The requirement that jurisdiction be established
as a threshold matter . . . is ‘inflexible and without exception.’”).
Nonetheless, “[i]f a
defendant’s Rule 12(b)(1) motion is an indirect attack on the merits of the plaintiff's
claim, the court may treat the motion as if it were a Rule 12(b)(6) motion to dismiss
for failure to state a claim upon which relief can be granted.”
Peckmann v.
Thompson, 966 F.2d 295, 297 (7th Cir. 1992).
In this case, DMG’s 12(b)(1) arguments are intertwined with its contentions
with respect to the merits of the case.
DMG contends that it rightfully paid
Stankiewicz the value of her shares required by the Shareholder Agreement, and thus
Stankiewicz has suffered no injury in fact.
This argument ultimately rests on the
plausibility of Stankiewicz’s allegations under the IBCA and the applicability of the
Shareholder Agreement.
Since the merits of the case and the Court’s jurisdiction
are inseparable, the Court will turn to the parties’ substantive arguments.
See
Peckmann, 966 F.2d at 297; Brown v. Club Assist Rd. Serv. U.S., Inc., No. 12 CV 5710,
2013 WL 5304100, *4 (N.D. Ill. Sept. 19, 2013).
II.
Stankiewicz’s Termination
The gist of Stankiewicz’s claim is that DMG purported to terminate her on July
31 (in violation of the ninety-day notice provision and presumably knowing that the
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sale of DMG-PMS was imminent), when in fact she and DMG had agreed that she
would remained employed with the company until August 31, 2017.
This is the
fulcrum upon which the entire case totters.
Now DMG argues that it doesn’t matter whether its decision to terminate
Stankiewicz on July 31 was legally justified, because the Shareholder Agreement
provides that an employee’s shares are automatically redeemed upon termination “for
any reason.”
But surely, this argument—though superficially appealing—proves
too much. After all, if this were the case, DMG could terminate whomever it wanted,
whenever it wanted, for whatever reason it wanted (whether legally permissible or
not), thereby triggering automatic redemption of an employee’s shares at any time of
its own choosing.
Such a nonsensical reading of the contract cannot stand.
See
Suburban Auto Rebuilders, Inc. v. Associated Tile Dealers Warehouse, Inc., 902
N.E.2d 1178, 1190 (Ill. App. Ct. 2009) (“Courts will construe a contract reasonably to
avoid absurd results.”) (citing Health Prof’ls, Ltd. v. Johnson, 791 N.E.2d 1179, 1193
(Ill. App. Ct. 2003)).
That said, it is unclear why Stankiewicz relies solely on a claim under the IBCA
(a declaratory judgment action, no less), rather than also asserting common law
claims, such as breach of contract.
See, e.g., Hess v. Kanoski & Assocs., 668 F.3d 446,
453 (7th Cir. 2012) (explaining that breach of a termination-notice provision “requires
the [employer] to pay [Plaintiff] whatever compensation [she] was due during that
time”); Scherer v. Rockwell Int’l Corp., 975 F.2d 356, 359–61 (7th Cir. 1992)
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(addressing the issue of whether an employee was terminated improperly without
cause or notice as a question of breach of contract). To the extent that her ultimate
goal is to recover the difference between the value of her shares post-sale and $11,000,
she presumably could obtain this amount in damages.
In any event, because the date of Stankiewicz’s termination for purposes of the
Shareholder Agreement is a hotly contested issue, it must be left for discovery, and
DMG’s motion to dismiss is denied.
There are two final matters that should be addressed.
First, Stankiewicz
contends that, even if her employment had been properly terminated on July 31,
2017, the value of her shares still should have been determined pursuant to the
procedures for dissenting shareholders set out in 805 Ill. Comp. Stat. 5/11.70(d).
This is incorrect.
Section 5/11.70(d) provides:
A shareholder who makes written demand for payment . . . retains all
other rights of a shareholder until those rights are cancelled or modified
by the consummation of the proposed corporate action.
Upon
consummation of that action, the corporation shall pay to each dissenter
who transmits to the corporation the certificate or other evidence of
ownership of the shares the amount the corporation estimates to be the
fair value of the shares, plus accrued interest, accompanied by a written
explanation of how the interest was calculated.
805 Ill. Comp. Stat. 5/11.70(d). The first sentence of this subsection might be read
to allow a shareholder to “retain” her appraisal right as long as she makes a written
demand, no matter whether she subsequently ceases to be a shareholder.
Nonetheless, the language of the second sentence presumes that the shareholder still
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owns the shares upon the “consummation of the proposed corporate action,” as the
shareholder must “transmit[] to the corporation” at that time “the certificate of other
evidence of ownership of the shares.”
Id.
Other sections of the statute are in accord
with this conclusion; for instance, 11.70(j)(1) provides that fair value should be
established “immediately before the consummation of the corporate action to which
the dissenter objects.”
The Illinois Appellate Court has reached the same conclusion.
In Hunter v.
Vercellotti, the court observed:
[T]he statutory procedure [of 11.70] clearly contemplates a scenario in
which the dissenting shareholder demands payment. The corporation
in turn issues an opinion as to the estimated value of the shares and a
commitment to pay the shareholder that amount upon the shareholder
transmitting evidence of ownership to the corporation . . . . This of
course assumes the shareholder will be amenable to transferring
evidence of ownership in the shares prior to receiving what the
shareholder believes is the full value of the shares.
649 N.E.2d 557, 560 (Ill. App. Ct. 1995) (emphasis added); see also Brynwood Co. v.
Schweisberger, 913 N.E.2d 150, 169 (Ill. App. Ct. 2009) (“[T]he ‘consummation’ or the
completion of the corporate act . . . correspondingly triggers the corporation’s legal
obligation to pay the dissenter the fair value of his or her shares.”).
For a
shareholder to transfer evidence of ownership before receiving the fair value of her
shares, it is necessary for her to own those shares.
Accordingly, if a shareholder no
longer has an ownership right to shares at the time the transaction is consummated,
the shareholder cannot receive a fair value for such shares under the dissenter
appraisal process provided by 850 Ill. Comp. Stat. 5/11.70.
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As DMG points out, a
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contrary interpretation would be absurd—for instance, a shareholder could sell
shares to a third party after providing notice of intent to dissent, and then obtain
double recovery from the company in the form of “fair value” under the IBCA.
Here, if Stankiewicz’s employment were deemed to have been terminated for
purposes of the Shareholder Agreement on July 31, 2017, her shares would have been
automatically redeemed at that time and the agreement’s valuation provision would
control.
See Shareholder Agreement §2(c) (“The Shares shall be automatically
redeemed by [DMG] and shall no longer be deemed outstanding for any reason upon
the occurrence of . . . [t]he termination of employment of the Shareholder with [DMG]
for any reason.”).
A similar result occurred in Dolezal v. Plastic & Reconstructive
Surgery, S.C., 640 N.E.2d 1359, 1366–67 (Ill. App. Ct. 1994).
There, the Illinois
Appellate Court held that a stock repurchase agreement entered into by a physician
and former employee-shareholder of the defendant “c[a]me into play” upon the
physician’s termination.
Id.
Because the physician’s shares were repurchased
under the agreement, he no longer had standing to petition the court for relief
otherwise available to a shareholder by statute.
Id.
Second, Stankiewicz insists that the “fair value” of shares cannot be set by
agreement, and that Courts are required to undertake a determination of whether
the purchase price is ultimately equitable.
That is incorrect.
Stock repurchase
agreements—including those that set a buyback price—are routinely enforced.
See,
e.g., id. at 1366–67 (upholding the validity of a stock repurchase agreement despite
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the plaintiff’s attempt to petition the court to dissolve the company or appoint a
receiver); Harris Tr. & Sav. Bank v. Hirsch, 445 N.E.2d 1236 (Ill. App. Ct. 1983)
(concluding that a stock repurchase agreement setting repurchase price was
ambiguous, but otherwise assuming it could be valid); Bird Chevrolet Co. v. Jackson,
336 N.E.2d 487 (Ill. App. Ct. 1975) (upholding a stock repurchase agreement setting
a valuation scheme); see also Coleman v. Taub, 638 F.2d 628, 629 (3d Cir. 1981)
(upholding the validity of an employee-shareholder’s repurchase agreement setting
mechanisms for determining the value of the repurchase, despite the fact that the
employee was terminated pending a merger transaction).
The key to the case is whether DMG’s decision to terminate Stankiewicz on
July 31, 2017 was consistent with the parties’ agreements, or whether the parties had
an enforceable agreement to postpone her termination date to August 31, 2017. This
issue can only be decided after discovery.
Conclusion
For the reasons stated, DMG’s motion to dismiss [19] is denied.
IT IS SO ORDERED.
ENTERED
3/8/19
__________________________________
John Z. Lee
United States District Judge
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