Machnicki v. Nowobilski

1

2024 IL App (3d) 230306-U

RICHARD MACHNICKI, individually and derivatively on behalf of Northstar Foods, Inc., an Illinois Corporation, Plaintiff-Appellant, v. JOHN NOWOBILSKI; DONNA NOWOBILSKI; and 2601 AMERICAN LANE, INC., an Illinois Corporation, Defendants-Appellees.

No. 3-23-0306

Court of Appeals of Illinois, Third District

February 28, 2024

This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the Circuit Court of the 18th Judicial Circuit, Du Page County, Illinois, Circuit No. 21-L-199 Honorable Timothy J McJoynt, Judge, Presiding.

JUSTICE HETTEL delivered the judgment of the court. Presiding Justice McDade and Justice Albrecht concurred in the judgment.

ORDER

HETTEL, JUSTICE

¶ 1 Held: Trial court erred in granting defendants' motion for preliminary injunction where the issuance of the injunction altered the status quo and defendants failed to show a change in status was required due to an extreme emergency or to prevent serious harm.

¶ 2 Plaintiff, Richard Machnicki, appeals from the issuance of a preliminary injunction in favor of defendants, John and Donna Nowobilski and 2601 American Lane, Inc. (collectively the Nowobilskis and/or defendants), forcing the sale of Northstar, Inc. (Northstar) a meat processing company owned in partnership by John and Richard. On appeal, Richard claims the trial court erred in granting the injunction in defendants' favor because it altered the status quo and ultimately granted defendants relief on the merits of their underlying claim without conducting a full hearing. He also argues the court abused its discretion in finding that defendants satisfied the elements of a preliminary injunction motion. We agree with Richard's first argument and, therefore, reverse and remand for further proceedings.

¶ 3 I. BACKGROUND

¶ 4 John and Richard are the sole and equal shareholders of Northstar, a federally certified food processing company of deli meats, specialty sausages, and Polish foods in Elk Grove, Illinois. John and Richard formed the company in 2004 both investing $75,000 and agreeing to be 50% partners in the business.

¶ 5 Under the corporate bylaws, Northstar has three directors, Richard, John, and John's wife, Donna. John and Donna serve as the company's president and secretary, respectively, and run the day-to-day operations. Machnicki does not work for Northstar and does not serve as an officer.

¶ 6 At the beginning of the partnership, John and Richard were both paid a salary of $42,000. As the years passed, John and Richard's annual salaries increased to $260,000. Donna did not earn a salary. After several years of success, Northstar grew into a multimillion dollar corporation. In 2015, as the company's profitability continued to expand, John reviewed the records and concluded that Donna should be paid for her day-to-day management services for the previous ten years. He decided to pay her past due compensation over four years (2015-2018), averaging $1,158,000 a year. In 2019, Donna began earning an annual salary of $265,000. In 2021, Northstar reported an average annual gross revenue of $25 million and an adjusted "EBITDAR" (earnings before interest, taxes, depreciation, and amortization) of $8.5 million.

¶ 7 Along with its financial growth, Northstar outgrew its production facility, requiring John and Richard to lease additional buildings. Currently, Northstar's production facility is comprised of three leased properties: 2600 Delta Lane and 2575 American Lane, which are owned by John and Richard (2600 Delta, Inc.); and 2601 American Lane, which is owned by John and Donna (2601 American Lane, Inc.).

¶ 8 As the company continued to succeed, relations between John and Richard deteriorated. In 2015, on the advice of his accountant, John stopped paying Richard a salary, claiming that his salary was inappropriate because Richard was not a Northstar employee. In December 2019, after several years of discord, Richard's attorney sent John a written demand to examine the corporate records, pursuant to section 7.75 of the Business Corporation Act of 1983 (Business Corporation Act) (805 ILCS 5/7.75 (West 2018)), stating that he had concerns that John was mismanaging Northstar. He demanded all financial, accounting, and tax records from 2013 to 2019, as well as the Nowobilskis' personal tax returns. The Nowobilskis responded in a letter through counsel and declined to produce the records, claiming that Richard's demand was not proper under the Business Corporation Act. The letter also stated that John was willing to enter into a buy/sell agreement, providing Richard with the right to buy John's ownership in Northstar and its assets based on a valuation by an independent third party.

¶ 9 On February 16, 2021, Richard filed suit against defendants, claiming misuse of corporate funds and seeking access to Northstar's corporate records. He claimed that Northstar "grossly overpaid" for rent at 2601 American Lane and that the Nowobilskis distributed the majority of annual profits to themselves and overcompensated themselves with disproportionate salaries. The complaint contained four claims: (1) a breach of fiduciary duty claim; (2) a derivative claim pursuant to section 12.56 of the Business Corporation Act (805 ILCS 5/12.56 (West 2020)); (3) an accounting claim, requested a complete accounting of Northstar's revenues and expenses, and (4) a petition to inspect the corporate records, requesting the production of corporate and personal records from 2013 to the present. Richard requested numerous remedies, including removing the Nowobilskis from their officer positions, installing himself as the controlling officer, injunctive relief preventing the Nowobilskis from controlling Northstar, and monetary damages. In their answer to the complaint, the Nowobilskis asserted several affirmative defenses, including waiver, notice, unclean hands, reasonableness of rent, and breach of fiduciary duty.

¶ 10 On June 1, 2021, the Nowobilskis filed an emergency motion for a temporary restraining order and preliminary injunction, seeking a restraining order to prevent Richard from entering the plant and a confidentiality order protecting the company's financial information. The motion claimed that Richard was "terrorizing" Northstar and its employees by entering the plant, refusing to wear federally mandated food safety equipment, and yelling at employees. It also alleged that Richad was seeking to review corporate records in an attempt to destroy the company and that he was involved in "some scheme to purchase the Company at a lower price."

¶ 11 Two weeks later, the Nowobilskis filed a two-count counterclaim for (1) trespass onto Northstar property, and (2) declaratory judgment to protect confidential corporate and personal financial records. In support of the trespass claim, they alleged that between March 2021 and June 2021, Richard appeared at the Northstar facility unannounced on several occasions, making verbal threats and entering restricted processing areas without the protective anti-contamination gear required in violation of United States Department of Agriculture and Food and Drug Administration regulations.

¶ 12 On June 30, 2021, the trial court entered an order granting the Nowobilskis' emergency motion in part and denying it in part. The court granted the restraining order and entered a temporary restraining order that prevented Richard from entering 2601 American Lane through July 14, 2021. However, the court denied defendants' request for an injunction to protect their confidential records based on an agreed confidentiality order drafted by the parties and entered on June 23.

¶ 13 On July 14, 2021, the court entered an agreed order prohibiting Richard from entering Northstar for 60 days. The trial court's order also dismissed, with prejudice, the Nowobilskis' affirmative defenses of notice, reasonableness of rent, and breach of fiduciary duty.

¶ 14 During the ensuing 12 months, Richard continued his pursuit to review the corporate records, and the Nowobilskis refused to produce them. Both parties filed numerous discovery motions citing the confidentiality agreement in support of their positions. The pleadings sought orders to compel, orders of protection, civil contempt findings, and sanctions.

¶ 15 On August 5, 2022, the Nowobilskis received a negotiated letter of intent (LOI) from Stampede Meat, Inc. (Stampede) to purchase Northstar and its assets for $30 million. The purchase of assets included Northstar's trucking company, the two properties owned by John and Richard, and the facility located at 2601 American Lane owned by John and Donna. As specified in the LOI, the aggregate offer of $30 million was comprised of: (1) $22.5 million in cash for Northstar Foods, Inc., the trucking company, and the two properties owned by John and Richard; (2) $1.5 million in cash for the property owned by John and Donna; and (3) $6 million in rollover equity. The LOI included a due diligence clause stating that Stampede intended to close the sale before September 30, 2022.

¶ 16 In the weeks that followed, the Nowobilskis' attorney notified Richard's attorney of the LOI and requested that Richard sign a non-disclosure agreement (NDA) before reviewing the offer. Richard expressed interest in the LOI, but the parties could not agree on the terms of the NDA. The Nowobilskis refused to provide the LOI, and Richard subsequently rejected the offer.

¶ 17 On August 25, 2022, John filed a countercomplaint entitled "Second Amended Counterclaim," as the only named counterplaintiff.^[1] The complaint alleged a single cause of action for shareholder deadlock and sought relief under ...