The Illinois Business Corporation Act’s Survival Statute for Suits against Dissolved Corporations

October 15, 2014

In the recent case of Pielet v. Pielet, 365 Ill. Dec. 497 (Ill. 2012), the Illinois Supreme Court discussed when a plaintiff may sue a dissolved corporation under Section 12.80 of the Illinois Business Corporation Act, also referred to as the “Survival Statute.”

In Pielet, the Pielets, a husband who died during the litigation and his wife, sued the dissolved corporate defendant, PBS One, for breach of a consulting agreement. The consulting agreement provided that, in exchange for Mr. Pielet’s interest in his scrap metal company, he would receive annual payments of $130,000 for his life and his wife would continue to receive the same amount for her life. The consulting agreement was eventually assigned to PBS One. PBS One made the required payments to Mr. Pielet until it dissolved in 1994. Nearly four years later in 1998, the company that assumed PBS One’s obligation to pay under the consulting agreement went bankrupt, and the Pielets stopped receiving payments. The Pielets sued PBS One for breach of contract.

Section 12.80 of the Illinois Business Corporation Act provides:

The dissolution of a corporation… shall not take away or impair any civil remedy available to or against such corporation, its directors, or shareholders, for any right or claim existing, or any liability incurred, prior to such dissolution if action or other proceeding thereon is commenced within five years after the date of such dissolution.

The Illinois appellate court interpreted this statute to mean that, although PBS One was shielded from causes of action that accrue after it dissolved, the Survival Statute permitted the plaintiffs to sue because they were asserting a “right” or “liability” they had acquired before PBS One dissolved.

The Illinois Supreme Court, however, disagreed with this interpretation and held that the Survival Statute did not protect plaintiffs’ cause of action. In reaching its decision, the court found In re Johns–Manville/Asbestosis Cases, 516 F.Supp. 375 (N.D.Ill. 1981), a federal case interpreting the Survival Statute’s application to similar facts, highly persuasive. In that case, the Northern District of Illinois held the proper formulation of the Survival Statute to be that the reference to “any right or claim existing”  applied only to causes of action brought by (not against) the corporation.

Thus, the proper formulation the Survival Statute is that it protects suits seeking: (1) any remedy available to such corporation for any right or claim existing prior to such dissolution and (2) any remedy available against such corporation for any liability incurred prior to such dissolution. Although this federal decision was not binding precedent on the Illinois Supreme Court, the court could and did find it persuasive authority. Moreover, the Illinois Supreme Court stated, “Illinois precedent has consistently held that only causes of action against a corporation which have actually accrued prior to the corporation’s dissolution are preserved by section 12.80 and its antecedents.”

Applying this interpretation of the Survival Statute to the facts in Pielet, the first type of suit did not apply because Mrs. Pielet’s suit was not being brought on behalf of PBS One; likewise, the second type of suit was inapplicable because the Pielets did not have a cause of action until PBS One’s successor breached the agreement approximately four years after its dissolution. Additionally, the Illinois Supreme Court noted that, although the Survival Statute only references “liabilities incurred” before dissolution and does not specifically say “causes of action” that accrue before dissolution, this discrepancy is moot because Illinois courts have – for a substantial period of time – interpreted the Survival Statute to apply only to pre-dissolution “causes of action” and therefore the legislature has implicitly acquiesced to this interpretation. Indeed, given Illinois courts’ long-standing adherence to this interpretation, “the court’s construction actually becomes part of the fabric of the law.”