Opinion
Appeal No. 3-19-0203
04-25-2019
KURT DREGER, Individually and Nominally on Behalf of THE DISPENSARY, L.L.C., an Illinois Limited Liability Company, Plaintiff-Appellant, v. DANIEL P. DOLAN, Defendant-Appellee.
NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1).
Appeal from the Circuit Court of the 14th Judicial Circuit, Rock Island County, Illinois
Circuit No. 19-L-14
Honorable Kathleen E. Mesich Judge, Presiding
JUSTICE O'BRIEN delivered the judgment of the court.
Justices Lytton and McDade concurred in the judgment.
ORDER
¶ 1 Held: The trial court erred when it denied plaintiff's request for injunctive relief where plaintiff satisfied the requirements for the issuance of a temporary restraining order.
¶ 2 Plaintiff Kurt Dreger brought a multi-count complaint against defendant Daniel Dolan, alleging Dolan engaged in misconduct in the operation of The Dispensary, a medical cannabis dispensary. Dolan filed a section 2-615 (735 ILCS 5/2-615 (West 2016)) motion to dismiss, alleging the complaint failed to state a cause of action. Dreger then filed an "Emergency Motion
for Court Order Compelling Proportionate Distributions to Dreger for Tax Purposes and Restraining the Defendant from Self Dealing." A hearing on the motion to dismiss and the motion to compel were scheduled for the same day. The trial court heard the motion to dismiss first and struck five of the six counts in the complaint with leave to replead and held that the parties could request a hearing on the appointment of a receiver. The trial court then denied Dreger's emergency motion and he appealed. We reverse and remand.
¶ 3 FACTS
¶ 4 Plaintiff Kurt Dreger and defendant Daniel Dolan executed an amended and restated operating agreement in March 2015 for The Dispensary, L.L.C., a state-licensed medical cannabis dispensary. Dreger held a 30% interest and Dolan held a 70% interest in the dispensary. Both Dreger and Dolan were also required to hold principal officer licenses as owners in the dispensary. Dolan was the operating manager and Dreger was employed at the dispensary until October 24, 2018, when Dolan terminated Dreger's employment.
¶ 5 Dreger filed a complaint, alleging Dolan breached his fiduciary duties to Dreger both individually and derivatively as a part owner of the dispensary. He sought an accounting and the appointment of a receiver for the dispensary.
¶ 6 Dolan filed a motion to dismiss Dreger's complaint. Dreger then filed an "Emergency Motion for Court Order Compelling Proportionate Distributions to Dreger for Tax Purposes and Restraining the Defendant from Self Dealing." In the motion, he asserts that Dolan breached the operating agreement by taking distributions without also providing Dreger with a proportionate distribution as required by the operating agreement. He further asserts that his inability to pay his taxes due to Dolan's refusal to authorize a distribution puts his principal officer license in jeopardy and would allow Dolan to disassociate him as a dispensary member. Lastly, Dreger
argues that the appointment of a receiver would prevent Dolan from continued engagement in self-dealing with funds from The Dispensary, which misconduct Dreger alleges resulted in improper distributions to Dolan in the amount of $1,532,453.73. Dreger sought to have the trial court order The Dispensary to make distributions sufficient to allow Dreger to pay his tax liability, prohibit Dolan from disassociating Dreger from the business due to Dreger's inability to pay his taxes, and restrain and enjoin Dolan from self-dealing and operating The Dispensary other than in the normal course of business.
¶ 7 A hearing took place on Dolan's motion to dismiss. The trial court dismissed five of the counts (four for breach of contract and one seeking an accounting) with leave to replead and ruled that the parties may request the appointment of a receiver. A hearing on Dreger's emergency motion took place the same day, following which the trial court denied the motion. Dreger timely filed an interlocutory appeal under Illinois Supreme Court Rule 307 (eff. Nov. 21, 2017).
¶ 8 ANALYSIS
¶ 9 The issue in this interlocutory appeal is whether the trial court erred when it denied Dreger's motion for injunctive relief. Dreger argues that he presented the elements necessary for the trial court to issue a temporary restraining order (TRO).
¶ 10 Before we proceed with Dreger's argument, we must address Dolan's assertion that jurisdiction is not proper in this court. According to Dolan, Dreger did not request injunctive relief in the trial court and his failure to do so precludes an interlocutory appeal under Supreme Court Rule 307 (eff. Nov. 21, 2017). Dolan thus urges us to dismiss the appeal for lack of jurisdiction.
¶ 11 To decide the jurisdictional question, we must first determine whether Dreger's "Emergency Motion for Court Order Compelling Proportionate Distributions to Dreger for Tax Purposes and Restraining the Defendant from Self Dealing" sought relief in the nature of injunctive relief so as to confer this court with jurisdiction pursuant to Rule 307. An action for temporary injunctive relief is one brought by a party:
"to preserve the existing status of the property until the proper distribution of the property has been determined in litigation then pending respecting the property, provided irreparable damage may result if the existing status of the property is not preserved. *** [T]he court preserves the property in dispute, with the least injury to all parties, until it can finally determine their respective rights ***." PSL Realty Co. v. Granite Investment Co., 42 Ill. App. 3d 697, 700 (1976) (quoting 2 Puterbaugh, Chancery Pleading and Practice (7th Ed.), p. 626).
A TRO is a "quick, short-term process that is intended to maintain the status quo." Harper v. Missouri Pacific R.R. Co., 264 Ill. App. 3d 238, 243 (1994).
¶ 12 We reject Dolan's claim that we lack jurisdiction. Dreger asked the trial court to order Dolan to act to protect Dreger's right to maintain his principal officer license and to enjoin Dolan from doing anything to dissipate Dreger's right until the trial court decides Dreger's request for the appointment of a receiver. We consider that Dreger is seeking injunctive relief. His interlocutory appeal under Rule 307 was appropriate and provides this court jurisdiction.
¶ 13 We turn now to the trial court's denial of Dreger's request for injunctive relief. A party seeking a TRO must demonstrate that (1) it has a protected right, (2) it will be irreparably harmed if injunctive relief is not granted, (3) the remedy at law is inadequate, and (4) there is a likelihood of success on the merits. County of DuPage v. Gavrilos, 359 Ill. App. 3d 629, 634
(2005). The party requesting a TRO need only demonstrate a " 'fair question' " about his right and that the trial court should protect it by preserving the status quo until the case is decided on its merits. Id. (quoting Buzz Barton & Associates, Inc. v. Giannone, 108 Ill. 2d 373, 382 (1985)).
¶ 14 Illinois Supreme Court Rule 307(a), (d) (eff. Nov. 21, 2017) allows for interlocutory appeals as a right for certain decisions of the trial court, including the grant or denial of a motion for a TRO. When deciding an interlocutory appeal under Rule 307, this court considers only whether there was a sufficient showing in the trial court to support its grant or denial of the TRO. Department of Health Care & Family Services v. Cortez, 2012 IL App (2d) 120502, ¶ 14. We review the trial court's denial of a motion for injunctive relief for an abuse of discretion. In re Estate of Wilson, 373 Ill. App. 3d 1066, 1076 (2007).
¶ 15 First, we look at whether Dreger demonstrated he had a right in need of protection. Dreger holds a principal officer license that is required for owners of medical cannabis dispensaries. See 68 Ill. Adm. Code 1290.50 (2018). His failure to pay taxes threatens his ability to continue to hold that license. Id. Without the license, Dreger cannot own any interest in The Dispensary. The loss of Dreger's principal officer license also allows Dolan to disassociate Dreger from the business per the terms of the parties' operating agreement. We find Dreger has a right in need of protection.
¶ 16 Next, Dreger must establish his right will be irreparably harmed without issuance of the TRO. As discussed above, Dreger's tax liability and his inability to pay it threatens harm to his principal officer license and his ownership interest in The Dispensary. Without an ordered distribution from the business, Dreger cannot pay the partnership income tax, which will cause him to become ineligible to hold the principal officer license. Without the principal officer license, Dreger cannot own any interest in The Dispensary or any dispensary. The injunctive
relief Dreger requested from the trial court would provide him the ability to pay the taxes and maintain his principal officer license and ownership in the business until the merits of this case are decided. We consider that he established that irreparable harm would result without a TRO.
¶ 17 In many cases involving a dispute between business partners over proper disbursement of business assets, a money judgment provides an adequate remedy and thus obviates the necessity of injunctive relief. However, in this case, the payment of money to Dreger is not an adequate remedy because Dreger's ability to maintain his principal officer license and ownership interest in The Dispensary requires that he make this tax payment in a timely manner. The money is a necessary component of the relief Dreger is seeking, but only as it relates to being the sole acceptable method of payment of the tax liability. A further, but critical, factor is timeliness. In this unique circumstance, a money judgment granted to Dreger at some distant future date could not protect Dreger's right to maintain his current status as principal officer and owner of a medical cannabis dispensary in Illinois. A further issue related to timing is that Dreger was presented with this tax liability only after Dolan amended the tax returns for the years 2016 and 2017 while preparing returns for 2018. This has resulted in a large tax liability previously unknown to Dreger and for which he was unprepared to pay with other funds. Due to the unique nature of licensing in this industry, we find that Dreger has demonstrated that his remedy at law is inadequate.
¶ 18 Dolan argues that Dreger cannot demonstrate he has a likelihood of success on the merits because the trial court granted his motion to dismiss. However, the trial court did not grant the motion to dismiss in its entirety or with prejudice. When a trial court declines to dismiss an action with prejudice and grants a plaintiff leave to amend their pleadings, there is a presumption that the plaintiff can file a complaint upon which relief can be granted. Bejda v. SGL Industries,
Inc., 82 Ill. 2d 322, 328 (1980) (concluding that a section 2-615 motion to dismiss should not be granted with prejudice where there is a chance the complaint can be amended to state a cause of action). In addition, the trial court did not dismiss the count which sought the appointment of a receiver to carry out the operations of The Dispensary. As noted by the parties, the trial court offered to set a hearing on that count.
¶ 19 Lastly, Dreger has demonstrated a likelihood of success on the merits sufficient to avail himself of the protection of a temporary injunction. He argues that the evidence raises a "fair question" regarding his breach of contract claims. Those claims, however, are not before this court. They were dismissed by the trial court and Dreger has not replead them. Only his receivership count remains pending. The court may appoint a receiver to preserve the status quo until the parties' rights have been determined. 735 ILCS 5/2-415 (West 2016); PSL Realty Co. v. Granite Investment Co., 42 Ill. App. 3d 697, 700 (1976) (citing Kulwin v. Harsh, 232 Ill. App. 419, 423-24 (1924)). Dreger has submitted a number of examples where he alleges that Dolan took improper distributions from the business and engaged in self-dealing, and expressed concerns that Dolan's misconduct would continue. Under the circumstances, Dreger has established the likelihood of his success on obtaining the appointment of a receiver.
¶ 20 We find that Dreger established the elements necessary for the trial court to grant his "Emergency Motion for Court Order Compelling Proportionate Distributions to Dreger for Tax Purposes and Restraining the Defendant from Self Dealing." Accordingly, we reverse and remand to the trial court for the immediate entry of a temporary restraining order enjoining Dolan from taking any action to dissociate Dreger from the company and compelling Dolan to cause The Dispensary to make a distribution to Dreger in the amount of $101,017 to enable
Dreger to pay his tax obligations related to his allocable share of taxable income for 2016, 2017 and 2018. Payment shall be made within seven (7) days of said order.
¶ 21 CONCLUSION
¶ 22 For the foregoing reasons, the judgment of the circuit court of Rock Island County is reversed and the cause remanded.
¶ 23 Reversed and remanded.