Schultz v. Sinav Ltd.

1

2024 IL App (4th) 230366

FLOYD SCHULTZ, STANLEY BLUNIER, and BRAD RISKEDAL, Individually and as Class Representatives on Behalf of All of the Minority Unitholders of Illinois River Energy Holding, LLC, Plaintiff-Appellants and Cross-Appellees, v. SINAV LIMITED; GTL RESOURCES USA, INC.; GTL RESOURCES LIMITED; GTL RESOURCES PLC; GTL CAMBRIDGE LLC; RICHARD H. RUEBE; JEFFREY W. LEMAJEUR; VINCENT J. KWASNIEWSKI; NEAL T. JAKEL; SIEM KAPITAL, AS; HARWOOD CAPITAL LLP, f/k/a North Atlantic Value LLP; and SIEM INDUSTRIES, INC., Defendants-Appellees, Sinav Limited; GTL Resources USA, Inc.; GTL Resources Limited; GTL Resources PLC; GTL Cambridge LLC; Richard H. Ruebe; Jeffrey W. Lemajeur; Vincent J. Kwasniewski; and Neal T. Jakel, Defendants-Appellees and Cross-Appellants.

No. 4-23-0366

Court of Appeals of Illinois, Fourth District

April 5, 2024

Appeal from the Circuit Court of Ogle County. No. 14L15 Honorable John C. Redington, Judge Presiding.

Attorneys for Appellant Terrence P. Canade, Keith D. Parr and Hugh S. Balsam, of Locke Lord LLP, of Chicago, for appellants.

Attorneys for Appellee Paul E. Chadwick, of Fearer Nye &amp Chadwick, of Rochelle, and Charles K. Maier (pro hac vice), Brian A. Dillon (pro hac vice), Richard C. Landon (pro hac vice), and Brooke F. Robbins (pro hac vice), of Lathrop GPM LLP, of Minneapolis, Minnesota, for appellees Sinav Limited, GTL Resources USA, Inc., GTL Resources Limited, GTL Resources PLC, and GTL Cambridge LLC.

Thomas K. Cauley Jr., of Cauley Law Group LLC, of Hinsdale, and Joseph R. Dosch and Stephen Spector, of Sidley Austin LLP, of Chicago, for appellees Richard H. Ruebe and Jeffrey W. Lemajeur.

Marcos Reilly, of Hinshaw & Culbertson LLP, of Chicago, for appellees Vincent J. Kwasniewski and Neal T. Jakel.

Monte L. Mann, Joshua E. Liebman, and Ian P. Flanagan, of Armstrong Teasdale LLP, of Chicago, for other appellees.

JUSTICE DOHERTY delivered the judgment of the court, with opinion. Justices Knecht and Turner concurred in the judgment and opinion.

OPINION

DOHERTY JUSTICE

¶ 1 This class action, pending now for nearly a decade, has a complex factual and procedural history that is better understood in the context of the issues presented rather than through an extensive chronology. We first provide a broad overview of the case and then begin our analysis of the issues, supplying additional background information as needed.

¶ 2 I. OVERVIEW

¶ 3 In 2007, Illinois River Energy Holdings, LLC (IREH), was formed for the purpose of operating an ethanol plant in Rochelle, Illinois. IREH's membership consisted of the plaintiff class of approximately 100 minority shareholders who owned approximately 13% of IREH's shares (also called units), and defendant GTL Resources USA (GTL USA), which owned the remaining shares. IREH was formed under the Delaware Limited Liability Company Act (Act) (Del. Code Ann. tit. 6, § 18-101 (West 2013)), and its activities were governed by a written operating agreement (LLC Agreement). The LLC Agreement provided that IREH would be managed by a seven-person board of managers with broad authority over the company's affairs. At all times, IREH's members and managers were required to comply with any contractual duties imposed on them by the LLC Agreement and any duties imposed on them by the laws of Delaware, the state where IREH was formed and whose laws the parties agreed would govern the contract. The contract also included a waiver of the parties' right to a jury trial.

¶ 4 Perhaps unsurprisingly given the 87%-13% split in ownership, the LLC Agreement granted GTL USA the power to appoint four of the seven managers in its sole discretion, with the remaining three managers elected by the shareholders at large. The LLC Agreement also provided that majority shareholder approval was necessary for any merger and that the minority shareholders waived their dissenters' rights, including any right to prevent such a merger. On January 30, 2012, the board, with GTL USA's approval, voted 4-3 to undergo a complex restructuring called a "cash-out merger" or "squeeze-out" that enabled GTL USA to take complete control of IREH by buying out the class members' shares at $1.10 per share. The three-vote minority consisted of plaintiffs Floyd Schultz, Stanley Blunier, and Brad Riskedal, all of whom had served on the IREH board since its founding in 2007.

¶ 5 The four-vote majority consisted of GTL USA's appointed managers at that time, defendants Richard H. Ruebe, Jeffrey W. Lemajeur, Vincent J. Kwasniewski, and Neal T. Jakel (Individual Defendants). All of the Individual Defendants had management roles at IREH; Reube, Lemajeur, and Kwasniewski also had management roles at GTL USA. Reube served on the IREH board since its founding in 2007, Lemajeur was appointed to the board by GTL USA in 2010, and Kwasniewski and Jakel were each appointed to the board by GTL USA on January 17, 2012, less than two weeks before the merger vote.

¶ 6 The merger was finalized with the Delaware Secretary of State on February 22, 2012. The company at the top of the new corporate structure was defendant Sinav Limited (Sinav), with complete ownership of IREH. Later in 2012, the Individual Defendants were offered "sweet equity" in Sinav at the market price; Reube purchased 6% of Sinav, Lemajeur purchased 2%, and Kwasniewski and Jakel each purchased 1%. Sweet equity is a kind of incentive compensation for a business's employees that serves as both carrot and stick; the employees will eventually receive a profit for selling their shares if they help to increase the value of the business, but if the value of the business declines, they will lose money on their investment.

¶ 7 In April 2014, CHS Inc. (CHS), a third-party Illinois company, announced that it would purchase Sinav. In May 2014, plaintiffs, individually and on behalf of the class of minority shareholders, filed a six-count complaint against defendants based on their roles in the cash-out merger. Plaintiffs did not join CHS as a defendant and did not seek to undo the cash-out merger or prevent CHS's impending purchase of Sinav, which went through in June 2014 at a price equivalent to $4.94 per share of IREH, after adjusting for estimated debt.

¶ 8 Plaintiffs sued GTL USA and the Individual Defendants (collectively, the IREH Defendants), alleging that all IREH Defendants breached the LLC Agreement (count I), the Individual Defendants breached common-law fiduciary duties as managers (count II), and GTL USA breached common-law fiduciary duties as the controlling shareholder (count III).

¶ 9 In deciding these counts, the trial court faced four main questions. First, the court had to determine duty; did the IREH Defendants in fact owe the class these alleged duties? Second, the court had to determine liability; did the IREH Defendants violate their duties by approving the cash-out merger? Third, the court had to determine the remedy; if the IREH Defendants were liable, what could the court do to rectify the problem? Fourth and finally, the court had to determine valuation; if the remedy involved the payment of money from the IREH Defendants to the class, what amount of money was appropriate?

¶ 10 After pretrial motion practice and bench trials in 2020 and 2022, the trial court found that (1) the IREH Defendants in fact owed the class the alleged duties; (2) the IREH Defendants breached their contractual and fiduciary duties when buying out the class; (3) the remedy would be compensatory damages, determined by subtracting $1.10 from a fair share price as of February 22, 2012, the date the merger was finalized; and (4) the fair share price was $2.78. The court calculated prejudgment interest on a compound basis and determined that the IREH Defendants were jointly and severally liable to the class for $11,966,903.15 on counts I through III. Plaintiffs appealed, and the IREH Defendants cross-appealed.

¶ 11 Plaintiffs also sued the other companies involved in the cash-out merger, alleging that they breached common-law fiduciary duties (count IV), aided and abetted the IREH Defendants' breach of their fiduciary duties (count V), and tortiously interfered with the contractual relationship between the class and the IREH Defendants by wrongfully inducing the IREH Defendants to breach the LLC Agreement (count VI). We refer to these remaining defendants as the Tort Defendants. They fall into two categories.

¶ 12 First are the "Investor Defendants," who provided GTL USA with the funds for the cash-out merger: Siem Industries, Inc. (Siem Industries), a company based in Luxembourg; Siem Kapital, AS (Siem AS), a Norwegian company and indirect subsidiary of Siem Industries; and North Atlantic Value LLP (NAV), now known as Harwood Capital LLP, a company based in the United Kingdom.

¶ 13 Second are the "Merger Defendants," each of which had a direct corporate relationship with GTL USA. GTL Resources PLC (GTL PLC) was a publicly traded English company that owned GTL USA as its sole subsidiary. Sinav was an investment vehicle formed by the Investor Defendants in October 2011 to take GTL PLC private; Sinav is a portmanteau of Siem and NAV. GTL Resources Limited (GTL Limited) was the private company formed when Sinav purchased all of GTL PLC's publicly traded stock on January 17, 2012. GTL Cambridge LLC (GTL Cambridge) was a subsidiary of GTL USA established to merge into IREH as part of the cash-out merger.

¶ 14 Simplified greatly, Sinav had an 87% stake in IREH before the cash-out merger; after the cash-out merger, Sinav had a 100% stake. Sinav was thus a more valuable investment for the Investor Defendants if the cash-out merger went through, and the approval of the IREH Defendants was necessary for that to happen. The Merger Defendants all ultimately...