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Follett Corporation v. Distribuidora de Libros, Inc.

United States District Court, N.D. Illinois, Eastern Division
Dec 21, 2001
No. 01 C 5867 (N.D. Ill. Dec. 21, 2001)

Opinion

No. 01 C 5867

December 21, 2001


ORDER


Plaintiff Follett Corporation ("Follett") brings this action for payment of a promissory note and interest thereon against Defendants Distribuidora de Libros, Inc. ("DdL") and its president, Carlos Alfonso Hernández ("Hernández"). Hernández now moves to dismiss Follett's claim against him. At the heart of this controversy is the issue of whether individual Defendant Hernández may be held liable for the corporate debts of DdL. Plaintiff contends Hernández is personally liable on the note because DdL had failed to file its annual corporate report. Under Illinois law, Plaintiff asserts, a corporate officer may be held personally liable for debts he undertakes in the name of a corporation he knows not to be a corporation in good standing. Defendant cites Puerto Rican corporate law to the contrary. The court need not resolve the underlying choice-of-law analysis, because it concludes that Plaintiff has failed to state a cognizable claim under either Illinois or Puerto Rico law.

The parties disagree over how to resolve the prospective tension between the promissory note's Conflict of Laws clause, which provides that the "Note shall be governed by the laws of the State of Illinois," (Ex. A) and the "internal affairs doctrine," under which matters of corporate governance are controlled by the laws of the state of incorporation, in this case Puerto Rico. See, e.g., Bagdon v. Bridgestone/Firestone, Inc., 916 F.2d 379, 382-83 (7th Cir. 1990).

A. Illinois Law

Plaintiff argues that a corporate officer who knew or should have known that his corporation "was not a corporation in good standing" at the time he signed a negotiable instrument is personally liable for the note. (Plaintiffs Resp. to Defendant's Mot. to Dismiss at 3-4.) All the cases cited in support of this proposition as well as the statute underlying it, however, impose personal liability only when the corporation in question has been dissolved by the Secretary of State. See, e.g., 805 ILCS 5/8.65(a)(3) ("The directors of a corporation that carries on its business after the filing by the Secretary of State of articles of dissolution . . . shall be jointly and severally liable to the creditors of such corporation for all debts and liabilities of the corporation incurred in so carrying on its business"); Cardem, Inc. v. Marketron Int'l, Ltd., 322 Ill. App.3d 131, 136, 749 N.E.2d 477, 481-82 (2nd Dist. 2001); Chicago Title Trust Co. v. Brooklyn Bagel Boys, Inc., 222 Ill. App.3d 413, 419-20, 584 N.E.2d 142, 146 (1st Dist. 1991); Steve's Equipment Serv., Inc. v. Riebrandt, 121 Ill. App.3d 66, 70, 459 N.E.2d 21, 24 (2nd Dist. 1984). Thus, the court concludes that individual liability only exists after a formal dissolution. Significantly, Plaintiff does not allege that the Puerto Rico Secretary of State ever filed articles of dissolution for DdL, much less did so prior to the signing of the Note.

This omission is unsurprising, because on the facts as alleged by Plaintiff, DdL had done nothing to warrant dissolution at the time the Note was signed. Plaintiff points to the Puerto Rican statutes requiring corporations to file annual reports and authorizing the Secretary of State to revoke the certificate of incorporation for any corporation that fails to file such reports for two consecutive years. 14 P.R. LAWS ANN. §§ 3271(a), 3272. Yet, as Plaintiff candidly acknowledges, DdL's second annual report was not due until April 15, 2000, more than a week after the execution of the Note at issue in this case. In light of the statutory requirement that the Secretary of State notify a corporation at least 60 days before revoking its corporate status, Id. § 3272, DdL could not possibly have been dissolved until mid-June 2000, months after the ink dried on the Note. Accordingly, the court concludes that Plaintiff has failed to state a claim against Mr. Hernández under Illinois law.

The court notes further that after the parties had briefed this issue, Mr. Hernández submitted a copy of what appears to be DdL's 1999 Corporate Annual Report. While the court may not consider such a submission in opposition to a motion to dismiss, the document if considered would further undermine Plaintiffs theory of individual liability.

B. Puerto Rico Law

Plaintiff asserts in the alternative that Hernández is also subject to liability under Puerto Rico law. Yet, somewhat confusingly, Plaintiff also specifically disavows a "veil-piercing theory" both in open court and in its pleadings. Without allegations of misconduct by Mr. Hernández or references to Puerto Rico laws that were allegedly violated by his conduct, the court is forced to conclude that the complaint does not survive even the liberal federal notice pleading standard.

CONCLUSION

For the reasons explained above, Defendant Hernández's motion to dismiss the complaint against him (Doc. No. 11-1) is granted.


Summaries of

Follett Corporation v. Distribuidora de Libros, Inc.

United States District Court, N.D. Illinois, Eastern Division
Dec 21, 2001
No. 01 C 5867 (N.D. Ill. Dec. 21, 2001)
Case details for

Follett Corporation v. Distribuidora de Libros, Inc.

Case Details

Full title:FOLLETT CORPORATION, Plaintiff, v. DISTRIBUIDORA de LIBROS, INC., and…

Court:United States District Court, N.D. Illinois, Eastern Division

Date published: Dec 21, 2001

Citations

No. 01 C 5867 (N.D. Ill. Dec. 21, 2001)