-Click here for a link to the court’s Opinion-
If you own or manage a corporation that is foreign to Illinois (maybe a Delaware or Indiana corp.) and you have been reluctant to file a suit in Illinois because you are not authorized to transact business here, your fears can be allayed. A recent decision by the Second District Appellate Court is good news for you.
Based on the court’s recent ruling in Young America v. Pistole, you can file suit in Illinois in order to meet a statute of limitations and then file with the Illinois Secretary of State’s Office to bring your corporation into compliance with the Illinois Business Corporation Act or the Illinois Not-For-Profit Corporation Act. The corporation will be treated as though it had been filed with the SOS all along.
Put differently, we can file your lawsuit now and then cure the failure to register with the Secretary of State.
In Illinois, the Business Corporation Act and General Not for Profit Corporation Acts seem to present formidable obstacles to foreign corporations trying to protect their interests in Illinois courts. Relevant portions of those acts are quoted below:
“a foreign corporation organized for profit, before it transacts business in this State, shall procure authority so to do from the Secretary of State See, e.g., 805 ILCS 5/13.05. No foreign corporation conducting affairs in this state without authority to do so is permitted to maintain a civil action in any court of this State, until such corporation obtains such authority.” General Not for Profit Corporation Act of 1986 (Not for Profit Act or Act) (805 ILCS 105/113.70 (West 2010)).
At first blush these statutes would seem to present a barrier for corporations that do not maintain an office in Illinois and/or are not registered with the Illinois Secretary of state. However, after a recent Second District case Young America’s Foundation v. Doris A. Pistole Revocable Living Trust the import of these statutes was clarified.In Young America’s Foundation v. Doris A. Pistole Revocable Living Trust the Second District Appellate Court altered the way that unregistered corporations are treated for the purposes of filing a lawsuit. The Second District created a new liberal registration rule whereby a foreign corporation, that is unregistered and not authorized to conduct business in the state at the time its lawsuit is filed, can maintain their suit by obtaining a sort of retroactive filing. In other words, a corporation that is not authorized or involuntarily dissolved by the Secretary of State (SOS) can be reinstated as though no dissolution ever took place.
In Young America v. Pistole the court was analyzing the legitimacy of a statute of limitations challenge to the filing of a second lawsuit. The plaintiffs, potential beneficiaries under the defendant trust, had filed suit as a foreign not-for-profit corporation, who notably was not registered with the SOS at the time of the first suits filing. After the corporation did register with the Illinois SOS and sought a voluntary dismissal of their first action, they filed a second action.
In the second action, the defendants moved to dismiss the lawsuit on the grounds that the second lawsuit was filed after the statute of limitations period. The plaintiffs countered asserting that the first lawsuit was timely filed and voluntarily dismissed and so the second lawsuit can relate back to the first timely filed lawsuit to satisfy the statute of limitations.
The defendants argued that because the plaintiff corporation filed the first suit without having been registered with the SOS, the first lawsuit was a “nullity” and therefore the second suit could not fairly relate back to it. The trial court agreed with the defendants and dismissed the plaintiffs’ claim holding that because the plaintiffs had not filed with the SOS until after the limitations period they had no valid cause of action.
However, on appeal, the treatment of the plaintiffs’ claim was vastly different. At the outset, the Second District agreed with the trial court that the not-for-profit plaintiff corporation was “conducting business” for purposes of the statute. The court also held that conducting business in the state required authority from the SOS, in the form of registration with the SOS, in order for that conducting of business to be lawful.
However, and this where the Second District’s opinion is particularly salient to this posting, the Second District held that the failure to register with the SOS was a curable defect. The court so held by pointing to other provisions in the Not-For-Profit Act, for example “that, ‘[u]pon the filing of the application for reinstatement, the authority of the corporation to conduct affairs in this State [and the validity of the acts of the corporate officers and directors] shall be deemed to have continued without interruption,’ disregarding the period of incapacity as if it had never occurred. 805 ILCS 105/113.60(d) (West 2010).” The court drew comparisons to Business Corporation Act and ultimately determined that the statues must intend for a failure to file to be curable or else a corporation would run the risk of losing valid claims making the penalty for non-compliance punitive as opposed to coercive (coercing compliance being the ultimate goal of the statutes restrictions). Young America, ¶ 51.
So, in its ultimate conclusion the court held that “[t]he purpose of the statute is better served by interpreting “maintain” as meaning “continue.” Under this construction, although a noncomplying corporation may file suit and stop the running of the limitations period, once its lack of capacity is raised it may not prosecute that claim or obtain a judgment until it complies.” Id, at ¶ 52. Notably, the court held that this principle applies to not-for-profit as well as for profit corporations in Illinois. See Id., at 53; Amman Food & Liquor, Inc. v. Heritage Insurance Co., 65 Ill. App. 3d 140, 147 (1978).
The crux of the Second District’s analysis of the statute was to allow corporations (not-for-profit and for profit) to obtain compliance with the statute even after a lawsuit was filed so as to encourage compliance. The court noted, if a stricter approach were to be held and a failure to comply with the SOS filing requirements were grounds for dismissal of a lawsuit, a corporation that files suit before it registers with the SOS has no incentive to later obtain compliance with the SOS. Young America, at ¶ 57.
So why is this relevant to your corporation?
If, for example, your corporation that is foreign to Illinois (maybe a Delaware or Indiana corp.) has been reluctant to file a suit in Illinois because you are not authorized to transact business here, your fears can be allayed.
After Young America v. Pistole, you can file suit in Illinois in order to meet a statute of limitations and then file with the SOS bringing yourself into compliance with the Business Corporation Act or Not-For-Profit Corporation Act. The corporation will be treated as though it had been filed with the SOS all along.
Put differently, we can file your lawsuit and the failure to register with the SOS is a curable problem.