FOURTH DIVISION August 14, 2014

No. 1-13-3938

SUNLITZ HOLDING COMPANY, W.L.L., ) HERBERT J. WALBERG, and ROGER S. ) BROWNWORTH, ) Appeal from the ) Circuit Court of Plaintiffs-Appellants, ) Cook County. ) v. ) No. 13 CH 14717 ) TRADING BLOCK HOLDINGS, INC., and ) Honorable STEPHEN HOFFMAN, in His Capacity as ) Neil H. Cohen, Chief Executive Officer of Trading Block ) Judge Presiding. Holdings, Inc., ) ) Defendants-Appellees. )

JUSTICE EPSTEIN delivered the judgment of the court, with opinion. Presiding Justice Howse and Justice Lavin concurred in the judgment and opinion.

OPINION

¶1 This case presents the question of whether shareholder-plaintiffs Sunliz Holding

Company, W.L.L. (Sunliz), 1 Herbert J. Walberg, and Roger S. Brownworth (collectively,

plaintiffs) established a proper purpose to inspect the books and records of the defendant

corporation Trading Block Holdings, Inc. (Trading Block), under section 7.75 of the Business

Corporation Act of 1983 (the Act) (805 ILCS 5/7.75 (West 2012)). Plaintiffs filed a complaint

seeking a writ of mandamus compelling defendants Trading Block and Stephen Hoffman, the

chief executive officer of Trading Block (collectively, defendants), to allow plaintiffs to inspect

certain books and records of Trading Block in order to determine whether Trading Block's

directors and officers had engaged in self-dealing to the detriment of the corporation. Plaintiffs 1 Plaintiffs assert that "Sunliz" is the correct spelling. The spelling, "Sunlitz," in the caption resulted from a typographical error in plaintiffs' complaint. No. 1-13-3938

appeal from the trial court's grant of defendants' motion to dismiss the complaint. We conclude that

plaintiffs established, with particularity, a proper purpose in seeking to review Trading Block's

books and records. We reverse the trial court's dismissal of plaintiffs' complaint and remand for

further proceedings.

¶2 I. BACKGROUND

¶3 Trading Block is an Illinois corporation offering online brokerage services for retail

trading and investing in stocks, bonds, and exchange-traded funds. Trading Block owns two

subsidiaries: AOS Inc. and MoneyBlock. Plaintiffs are shareholders of Trading Block.

¶4 On April 1, 2013, plaintiffs, through their attorney, sent a letter to Hoffman, the chief

executive officer of Trading Block, requesting an opportunity to review certain records of Trading

Block and its subsidiaries: (1) the articles of incorporation, bylaws, shareholder agreements, and

any amendments to those documents; (2) agendas and minutes for any board of directors' meetings

occurring from January 1, 2011 to present; (3) resolutions of the board of directors from January 1,

2011 to present; (4) share certificates; (5) current and original capitalization tables, and a list and

explanation for any changes to the capitalization table; (6) any contracts between Trading Block

and its officers and directors; (7) financial statements, including balance sheets, income

statements, statements of cash flow, and profit and loss statements, from January 1, 2011 to

present; (8) the general ledger and QuickBooks files; (9) accounts payable and receivable from

January 1, 2011 to present; (10) federal and state income tax returns from January 1, 2011 to

present; (11) marketing and private placement memoranda used to raise capital; (12) all reports

filed with any regulatory agencies; (13) any correspondence with the Financial Industry

Regulatory Authority, Security and Exchange Commission, and Chicago Board Options Exchange

from January 1, 2011 to present; (14) all offer letters sent to brokers from January 1, 2011 to

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present; (15) "[a]ll documents and analyses relating to and/or supporting the decision by the

TradingBlock [sic] Board of Directors to propose shareholder action related to adoption of the ***

2012 Stock Option Plan in approximately June[ ] 2012"; and (16) "[a]ll documents and analysis

[sic] related to and/or supporting Trading Block's Offer to Exchange Shares of Series A Preferred

Stock for Secured Promissory Note at $1.10 Per Share, as detailed in the correspondence dated

approximately December 26, 2012 to the Holders of Series A Preferred Stock and as mentioned in

TradingBlock's [sic] 2012 year-end summary letter e-mailed to all shareholders approximately

December 18, 2012." Plaintiffs sought these books and records "to determine the financial

condition of the company, the character of the management of the company, and whether the

company's financial practices [we]re appropriate."

¶5 On April 30, 2013, defendants, through their attorney, responded with a letter stating that,

"[w]ithout more, neither the character of the management of the Company nor a general inquiry

regarding the Company's 'financial practices' is a proper purpose for a Section 7.75 request." The

letter characterized plaintiffs' request for "a broad range of records" as a " 'fishing expedition.' "

Defendants enclosed with the letter copies of Trading Block's balance sheets and profit and loss

statements for the fiscal years that ended December 31, 2012 and December 31, 2011. The letter

also gave permission for Walberg and Brownworth to share "the package of information that was

provided to the Company's preferred shareholders in connection with the exchange offer recently

undertaken by the Company" with Sunliz.

¶6 On May 17, 2013, plaintiffs responded with another letter from their attorney requesting an

opportunity to review Trading Block's books and records. Plaintiffs asserted that their purpose in

making the request was:

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"to understand fully and assess the financial condition of TradingBlock, [sic] how the

company is being managed, whether the company's financial practices are appropriate, and

whether there has been any self-dealing by TradingBlock's [sic] management and/or

members of the Board of Directors that has had a negative impact on the company as a

whole or shareholders, in particular."

Plaintiffs referenced the board of directors' approval of a stock option plan in 2012 that "resulted in

the dilution of both common and preferred stock to the detriment of common stock shareholders

and preferred stock shareholders." Plaintiffs asserted that the stock option plan was approved by

the directors for their own benefit, not for the benefit of Trading Block or its shareholders.

¶7 The letter noted that the financial information that defendants provided with their April 30,

2013 response "suggest[ed] that the company is being managed in the self-interest of management

rather than for the benefit of the shareholders." Plaintiffs noted that these records showed that

revenues significantly increased each year, but the company continued to show a net loss due to

unspecified " 'other operating expenses.' " Plaintiffs also noted that these records showed increases

in commissions receivable at a time the board members of Trading Block were doing business with

Trading Block, suggesting that the board members were not making timely payments to the

corporation. Plaintiffs argued that these matters "require[d] additional explanation and review."

Plaintiffs expressed concern that Trading Block was being used "as a piggy bank for the insiders

and the Board of Directors." Plaintiffs requested an opportunity to review all of the records listed

in its April 1, 2013 letter by May 30, 2013.

¶8 On May 31, 2013, defendants' attorney sent plaintiffs the following response:

"We are in receipt of your letter dated May 17, 2013, demanding *** access to a

wide range of books and records of [Trading Block] and its subsidiaries. We are reviewing

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your requests with Trading Block's management and will respond to your letter when we

have completed our analysis."

Plaintiffs did not receive another response before the instant action was initiated.

¶9 On June 13, 2013, plaintiffs filed a complaint for a writ of mandamus, asking that the court

compel defendants to comply with their request and that the trial court impose statutory penalties.

The complaint averred that the June 2012 stock option plan diluted the value of Trading Block's

shareholders, that Trading Block had not issued dividends for "the past several years," that Trading

Block's revenues increased in the preceding three years but it continued to report a net loss to

shareholders, and that plaintiffs believed that members of Trading Block's board of directors had

not made timely payments to the corporation. Plaintiffs alleged that defendants had refused to

allow them to inspect Trading Block's books and records in order "to determine the financial

condition of the Corporation, the character of the management of the Corporation, and whether the

Corporation's financial practices are appropriate." Plaintiffs attached copies of the correspondence

between them and defendants as exhibits.

¶ 10 On September 6, 2013, defendants filed a motion to dismiss the complaint pursuant to

section 2-615 of the Code of Civil Procedure. 735 ILCS 5/2-615 (West 2012). Defendants' motion

asserted that plaintiffs failed to state a proper purpose for inspecting Trading Block's books and

records and that the breadth of their request amounted to an impermissible " 'fishing expedition.' "

¶ 11 On November 15, 2013, the circuit court granted defendants' motion to dismiss. The circuit

court found that plaintiffs' April 1, 2013 demand letter "failed to identify any particular purpose

and Defendants were not required to allow any inspection of Trading Block's books and records."

The court also found that plaintiffs' May 17, 2013 letter sought access to records "that went far

beyond any possible relevance to the 2012 Stock Option Plan," and that plaintiffs' "speculation

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regarding possible self-dealing [did not] support the existence of a proper purpose." Plaintiffs

appealed.

¶ 12 II. ANALYSIS

¶ 13 Plaintiffs contend that they established a proper purpose supporting their request to inspect

Trading Block's books and records. Defendants contend that plaintiffs failed to establish, with

particularity, a proper purpose in their letters requesting access to Trading Block's books and

records. For the reasons that follow, we agree with plaintiffs.

¶ 14 As a motion to dismiss pursuant to section 2-615 of the Code of Civil Procedure challenges

the legal sufficiency of a complaint on its face, we review the grant or denial of such a motion de

novo. Marshall v. Burger King Corp.,

(2006). "In reviewing the sufficiency of

a complaint, we accept as true all well-pleaded facts and all reasonable inferences that may be

drawn from those facts."

"We also construe the allegations in the complaint in the light most

favorable to the plaintiff."

"Exhibits attached to a complaint are considered part of the pleading

for every purpose, including the decision on a motion to dismiss." Dratewska-Zator v. Rutherford,

.

¶ 15 Section 7.75 of the Act provides that a corporation's shareholders are entitled to inspect

"the corporation's books and records of account, minutes, voting trust agreements filed with the

corporation and record of shareholders, and to make extracts therefrom, but only for a proper

purpose." 805 ILCS 5/7.75(b) (West 2012). "In order to exercise this right, a shareholder must

make written demand upon the corporation, stating with particularity the records sought to be

examined and the purpose therefor."

Section 7.75 further provides that, "[i]f the corporation

refuses examination," the shareholder may seek a writ of mandamus to compel compliance with

the Act. 805 ILCS 5/7.75(c) (West 2012). The shareholder bears the burden of establishing a

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proper purpose if the shareholder seeks to inspect the corporation's books and records of account,

but the corporation bears the burden of proving a lack of a proper purpose if the shareholder seeks

to inspect "minutes or the record of shareholders or a voting trust agreement."

¶ 16 The Illinois Supreme Court has stated that a shareholder has a proper purpose in requesting

records where the request is made "in good faith for a specific and honest purpose, not to gratify

curiosity or for speculative or vexatious purposes, providing also the interest *** is as a

stockholder and is lawful in character and not contrary to the interest of the corporation." Doggett

v. North American Life Insurance Co. of Chicago,

(1947); see also West Shore

Associates, Ltd. v. American Wilbert Vault Corp.,

(1994). Provided that a

shareholder can establish a proper purpose, that "shareholder is legitimately entitled to know

anything and everything which the records, books and papers of the company would show so as to

protect his interest." Weigel v. O'Connor,

(1978).

¶ 17 Plaintiffs cite Weigel in support of their argument that they established a proper purpose. In

Weigel, the shareholder wrote a letter to the corporation, asking to review numerous records to

determine the value of his shares, the nature and amount of corporate expenditures, the source of

corporate revenues, and the compensation paid to the corporation's officers and directors.

. At trial, the shareholder testified that he had received information that the corporation's

officers used corporate assets to enrich themselves to the detriment of the corporation.

.

In concluding that the shareholder had established a proper purpose, the Weigel court noted that

"proof of actual mismanagement or wrongdoing is not necessary. Good faith fears of

mismanagement are sufficient."

. The court also stressed that "[a] single proper purpose

is sufficient to satisfy the statutory requirement."

.

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¶ 18 Defendants liken plaintiffs' request in this case to that in Logal v. Inland Steel Industries,

Inc.,

(1991). In Logal, the shareholder, an employee of the corporation, sought

access to the corporation's books and records in order to determine whether the corporation had

closed one of its facilities due to "fraud or gross mismanagement."

. The shareholder

asserted that the closure resulted in the corporation being less competitive in the steel industry.

. Although recognizing that revealing fraud or gross mismanagement may constitute a

proper purpose, the Logal court found that the shareholder had failed to state a proper purpose

because he "allege[d] no circumstances that justif[ied] [his] assertion that the decision to close the

facility amounted to fraud or gross mismanagement."

. The court characterized the

shareholder's request as an attempt "to satisfy his curiosity as to recent events that he ha[d]

witnessed or heard about as an employee."

.

¶ 19 In this case, plaintiffs' request more closely resembles the proper purpose of the

shareholder in Weigel than the mere curiosity of the shareholder in Logal. In their April 1, 2013

letter, plaintiffs indicated that they sought access to Trading Block's books and records "to

determine the financial condition of the company, the character of the management of the

company, and whether the company's financial practices [we]re appropriate." In their May 17,

2013 letter, plaintiffs expressed concerns that Trading Block's directors and officers, who were

doing business with the corporation at the time, were treating the corporation as a personal "piggy

bank" by engaging in insider deals to the detriment of the corporation. Plaintiffs referenced a June

2012 stock option plan passed by the board of directors that "resulted in the dilution of both

common and preferred stock to the detriment of common stock shareholders and preferred stock

shareholders." Plaintiffs also noted the possibility that Trading Block's directors were falsely

reporting losses and failing to make payments to the corporation as part of their dealings with the

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corporation. These purposes mirror the alleged mismanagement the shareholder in Weigel sought

to investigate. Unlike the shareholder in Logal, plaintiffs did not merely second-guess a corporate

decision; they expressed concerns regarding possible self-dealing by Trading Block's directors and

board members based upon the adoption of the stock option plan and information contained in

some of Trading Block's financial records. Nothing in the record suggests that plaintiffs had a

vexatious purpose in making these requests or that they were simply satisfying their curiosity in

seeking access to Trading Block's books and records. To the contrary, plaintiffs' demands showed

that they possessed a good faith fear of mismanagement, which they sought to confirm or refute by

examining Trading Block's books and records. Assuming the truth of these allegations, plaintiffs

stated a proper purpose under the Act.

¶ 20 Defendants maintain that Weigel does not apply because it was decided prior to the passage

of the 1983 Act, when the requirement that the shareholder state his proper purpose "with

particularity" was added. Pub. Act 83-1025 (eff. July 1, 1984) (adding Ill. Rev. Stat. 1985, ch. 32

¶ 7.75 (now 805 ILCS 5/7.75)). We disagree. This court has continued to rely upon Weigel's

interpretation of a proper purpose following the adoption of the Act. E.g., Corwin v. Abbott

Laboratories,

(2004) (citing Weigel and noting that, in passing the

Act, the legislature "let Weigel stand without changing or clarifying" it); Hagen v. Distributed

Solutions, Inc.,

(2002) (finding that Weigel remained authoritative

because "the plaintiff in Weigel had 'made a specific demand for designated documents.' " (quoting

Weigel,

)); Logal,

(citing Weigel for the proposition

that "a shareholder's good-faith request to inspect corporate books and records in order to reveal

fraud or gross mismanagement may constitute a proper purpose in Illinois"). We thus reject

defendants' contention that Weigel is obsolete.

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¶ 21 Even assuming that plaintiffs had to allege facts beyond those asserted by the shareholder

in Weigel, we find that plaintiffs stated their purpose "with particularity" as required by section

7.75. 805 ILCS 5/7.75(b) (West 2012). Plaintiffs specified that they were concerned with

self-dealing by Trading Block's directors and officers because of the June 2012 stock option plan

and financial documents showing that the corporation increased its revenue but continued to report

a loss due to unspecified expenses. The plaintiffs also noted that they suspected the corporation's

directors and officers of failing to make timely payments to the corporation because of an increase

in the commissions receivable in those financial statements. The plaintiffs thus supported their

requests by citing to specific facts contained in certain documents defendants had provided.

Plaintiffs have established, with particularity, a proper purpose in requesting access to Trading

Block's books and records.

¶ 22 Defendants argue that plaintiffs' demand was not stated "with particularity" because they

failed to identify the directors allegedly engaged in self-dealing and failed to specify what business

dealings with Trading Block may have required the directors to pay commissions. 805 ILCS

5/7.75(b) (West 2012). Defendants' argument places too heavy a burden on plaintiffs. This court

has stated that the particularity requirement of section 7.75 is " 'a relative one, turning on the

degree of knowledge that a movant in a particular case has about the documents he requests.' "

Hagen,

(quoting Parsons v. Jefferson-Pilot Corp.,

(N.C. 1993)). In order to satisfy the particularity requirement with respect to the documents a

shareholder seeks to review, the shareholder's request must " 'be sufficient to apprise a man of

ordinary intelligence what documents are required,' " depending on the facts and circumstances of

each case. Hagen,

(quoting Parsons,

). We find that this

interpretation of the phrase, "with particularity," should similarly apply to the requirement that a

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shareholder state his purpose with particularity. See Maksym v. Board of Election Commissioners

of the City of Chicago,

(2011) (" '[W]here the same, or substantially the same,

words or phrases appear in different parts of the same statute they will be given a generally

accepted and consistent meaning, where the legislative intent is not clearly expressed to the

contrary.' " (quoting Moran v. Katsinas,

(1959)).

¶ 23 In this case, plaintiffs have not yet reviewed records to confirm or deny their fears that

Trading Block has been mismanaged. Yet defendants would have plaintiffs state the details of the

alleged mismanagement, which plaintiffs are not certain has even occurred. Plaintiffs do not need

to establish "actual mismanagement or wrongdoing ***. Good faith fears of mismanagement are

sufficient." Weigel,

. Plaintiffs specified that they sought records to

determine whether the June 2012 stock option plan, unidentified expenses, and increase in

commissions receivable were due to mismanagement. Plaintiffs' statements were sufficiently

particular to notify defendants of the reason they sought access to Trading Block's books and

records.

¶ 24 Defendants also contend that the scope of plaintiffs' requested inspection demonstrates that

they had no proper purpose in making their request, citing West Shore Associates, Ltd. v. American

Wilbert Vault Corp.,

(1994). In West Shore, the shareholder appealed from a

bench trial in which the trial court ruled that the shareholder lacked a proper purpose in seeking to

review the corporation's books and records.

. The shareholder averred that it had a proper

purpose in making its request because it sought to ascertain the value of its stock.

. The

West Shore court found that the trial court's ruling was not against the manifest weight of the

evidence, highlighting evidence that the shareholder may have been seeking information for a

purpose detrimental to the corporation:

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"[T]he record reveals ample evidence to support the ultimate finding that [the shareholder]

failed to prove a proper purpose for its document examination requests. [The shareholder's]

sole asset consisted of its shares of [the corporation's] stock. It conducted no business apart

from its *** stock ownership, and its president was also the president of [the corporation's]

principal competitor. These facts, coupled with the breadth of [the shareholder's] requests,

the proprietary information it sought, and the testimony of its own expert witness that he

had never seen nor requested the extent of information sought in order to value stock in a

closely held corporation, all support the court's decision in this case."

.

¶ 25 We find that defendant's reliance on West Shore is misplaced. West Shore was an appeal

from a trial and the appellate court applied a manifest weight of the evidence standard to the trial

court's finding that plaintiffs lacked a proper purpose. Here, we review the trial court's dismissal of

plaintiffs' complaint de novo and must draw all reasonable factual inferences in plaintiffs' favor.

Marshall,

. Unlike West Shore, therefore, we owe no deference to the trial court's

determination that plaintiffs lacked a proper purpose. More importantly, this case lacks the

evidence of an improper purpose present in West Shore. The shareholder in West Shore was

closely tied to a competitor of the corporation and conducted no business other than owning the

corporation's stock, suggesting that the shareholder's request may have been an effort to obtain

information to the detriment of the corporation. In this case, the record does not suggest any reason

why plaintiffs would seek to inspect Trading Block's books or records in order to disadvantage

Trading Block. We thus find that West Shore is distinct from this case.

¶ 26 The breadth of plaintiffs' requested inspection does not compel us to find that their purpose

was improper. Critically, this court has "held that once a proper purpose has been established, 'the

shareholder's right [to inspect] extends to all books and records necessary to make an intelligent

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and searching investigation' and 'from which he can derive any information that will enable him to

better protect his interests.' " (Emphasis in original and internal quotation marks omitted.) Corwin,

(quoting Weigel,

); see also Hagen,

(same). Having established a proper purpose, plaintiffs were entitled to access any and all

documents necessary for that inquiry. Plaintiffs' April 1, 2013 letter limited the scope of their

inquiry mostly to information dating back to January 1, 2011. Plaintiffs expressly listed those

documents they sought to inspect. Defendant has not explained how the scope plaintiffs' request

proves an improper motive. Viewing plaintiffs' request in a light most favorable to them, we

cannot conclude that the scope of plaintiffs' request demonstrated that they had an improper,

vexatious purpose.

¶ 27 Defendants also cite Thomas & Betts Corp. v. Leviton Manufacturing Co.,

(Del. 1996), in support of their position that the documents requested by plaintiffs far exceeded

any proper purpose. In that case, the Delaware Supreme Court affirmed a trial court order limiting

a shareholder's inspection of corporate books and records to those documents the trial court found

relevant to the shareholder's stated purpose.

. This court, however, has expressly

rejected the notion that a trial court should circumscribe a shareholder's review of a corporation's

books and records provided that the shareholder establishes a proper purpose. See Hagen,

("The court in Weigel decided that it was improper for the trial court to

circumscribe the shareholder's right to examine corporate books and records and to allow only

piecemeal inspection when the record indicated that the shareholder had presented sufficient

evidence of a proper purpose." (Emphasis in original.)). We decline to follow Delaware case law in

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light of the relevant Illinois precedent on this issue. 2 See In re Estate of Walsh,

("Illinois courts do not look to the law of other states when there is relevant Illinois

case law available.").

¶ 28 Defendants also briefly argue that plaintiffs failed to allege that they were shareholders of

Trading Block's subsidiaries and thus have failed to demonstrate their entitlement to review those

subsidiaries' books and records. Defendants did not raise this argument before the trial court. They

have forfeited it. See Haudrich v. Howmedica, Inc.,

(1996) ("It is well settled

that issues not raised in the trial court *** may not be raised for the first time on appeal.");

Valdovinos v. Tomita,

(2009) (finding that defendants forfeited arguments

regarding the sufficiency of the complaint where they did not raise them in their motion to

dismiss). Even ignoring defendants' forfeiture, plaintiffs' two demand letters and complaint each

allege that they are shareholders of Trading Block. We must take these allegations as true for

purposes of this appeal and construe them in the light most favorable to plaintiff. Marshall,

. Nothing in the complaint or attached exhibits indicates that plaintiffs were not entitled to

review Trading Block's subsidiaries' records, and defendants do not specify which documents

plaintiffs should not be entitled to review. We thus reject defendants' claim that plaintiffs failed to

plead their shareholder status.

¶ 29 Taking plaintiffs' allegations as true, we conclude that plaintiffs have sufficiently pled their

entitlement to inspect records under section 7.75. We note that our decision does not preclude

defendant from presenting evidence that plaintiffs lacked a proper purpose or that plaintiffs'

2 We also note that defendants' contention that the Act was designed to "parallel" Delaware law is not supported by the Act's legislative history. 83d Ill. Gen. Assem., House Proceedings, Oct. 20, 1983, at 70 (statements of Representative McCracken) (noting that the Act represented a "compromise" between the management-friendly Delaware statute and other jurisdictions' provisions designed to protect shareholders).

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request has exceeded its stated purpose in subsequent proceedings. Rather, we simply find that,

assuming the truth of plaintiffs' allegations, plaintiffs have sufficiently pled a proper purpose in

requesting to inspect Trading Block's books and records. We thus reverse the trial court's dismissal

of plaintiffs' mandamus complaint and remand for further proceedings consistent with this

opinion.

¶ 30 III. CONCLUSION

¶ 31 For the reasons stated, we reverse the trial court's dismissal of plaintiffs' complaint and

remand for further proceedings.

¶ 32 Reversed and remanded.

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