In Loftus v. Zorch International, Inc., 2018 IL App. (1st) 180169-U, the Illinois First District Appellate Court reversed the circuit court’s temporary restraining order (TRO) preventing a corporate merger from proceeding. The appellate court held that the circuit court abused its discretion because the plaintiff failed to meet the elements for a TRO, including the lack of an adequate remedy at law, holding that the Business Corporation Act (BCA) dissenters’ rights provide an adequate remedy.

Plaintiff Nicole Loftus alleged that she was the founder and former CEO of defendant Zorch International, Inc. After obtaining financing from Bridge Street Capital Partners, Loftus alleged that Bridge Street gained control of Zorch and forced Loftus out of her roles as CEO and member of the board, although she remained a minority shareholder of Zorch.

In December 2017, Loftus learned that Zorch’s board had negotiated the sale of Zorch to a third party, Satori Capital, LLC, when she received a request that she consent to the sale. When the shareholders failed to consent, Zorch restructured the transaction as a merger. Loftus alleged the Satori merger would have resulted in some shareholders receiving nothing whereas the board would be fully compensated. Loftus also alleged that another potential suitor for Zorch, LLR Partners, submitted an offer to buy Zorch for $2 million more than Satori. Loftus alleged that the Zorch board would not consider the LLR offer because it would have placed Loftus in a management role and would likely have resulted in the then-current Zorch CEO being removed.

Loftus filed a verified complaint and a petition seeking a TRO. To establish a right to a TRO, a plaintiff must demonstrate: (1) an ascertainable right in need of protection; (2) a likelihood of success on the merits; (3) irreparable harm if the TRO is not granted; and (4) no adequate remedy at law. The circuit court granted the TRO, but the appellate court reversed, finding that Loftus failed to meet three of the elements.

Of particular note was the court’s rejection of Loftus’s argument that the she lacked an adequate remedy at law because her Zorch shares would lose value and because she would lose the opportunity to regain control over Zorch. The court rejected the latter position because it was speculative. The LLR offer was contingent because Zorch had to accept the LLR offer first -- an offer that expired by its own terms three days before the court rendered its opinion. As to the former, the court pointed to the BCA which provides dissenting shareholders the right to seek the fair value of their shares if they believe the compensation paid in connection with a transaction was not fair. See 805 ILCS 5/11.65, 11.70. The court held that Loftus failed to show how the statutory remedy was inadequate.

This holding is a key takeaway, and is the first time an Illinois court appears to have addressed the issue. If the BCA provides an adequate remedy at law for dissenting shareholders in all cases where they believe they will not receive fair compensation, then injunctive relief may not be available to the dissenter to stop a transaction from proceeding at all. The Loftus court did not make such an affirmative declaration, instead holding that Loftus failed to prove the BCA was not an adequate remedy at law. It will be interesting to see whether other plaintiffs can prove that the BCA’s remedy is inadequate in the future and the frequency of the case’s use by defendants, even though it is unpublished.