Wednesday, May 4, 2011

ll App Ct Stops Short of Holding That Banks Are Not Corporations Requiring Registered Agents

An Illinois Appellate Court recently held that a debtor failed to adequately allege that a bank suing as plaintiff was transacting business in the state without a certificate of authority, in violation of the Illinois Business Corporations Act, 805 ILCS 5/13.70, and therefore reversed the lower court's dismissal of the plaintiff bank's collection complaint.

A copy of the opinion can be found at:

Defendant Ebro Foods, Inc. ("Borrower"), executed and delivered to LaSalle Bank, N.A. a loan and security agreement and revolving note. Additional defendants ("Guarantors") executed and delivered to the bank separate continuing unconditional guaranties wherein each guaranteed payment of Borrower's indebtedness. Borrower defaulted on the loan and the bank's successor by merger ("Plaintiff Bank") filed a complaint against Borrower, later dismissed due to Borrower's filing bankruptcy, and against Guarantors based upon their unconditional guaranties.

Guarantors filed a motion to dismiss, arguing among other things that the Plaintiff Bank could not bring suit in Illinois because it lacked a certificate of authority pursuant to Section 13.70 of the Act. At the time the motion to dismiss was filed, the Illinois Secretary of State's Web site indicated that the holding company for the Plaintiff Bank was not in good standing as to its Illinois corporate registration.

In response, the Plaintiff Bank argued that its holding company was not the same as the Plaintiff Bank, and that the Plaintiff Bank - not its holding company -- was the plaintiff in the suit. On a motion to reconsider, the Plaintiff Bank also argued for the first time that "dismissal was improper because it is a national banking association authorized to do business in all 50 states, which includes the ability to sue and be sued," and that the National Bank Act preempts the application of Section 13.70.

The trial court granted Guarantors' motion to dismiss, and denied the Plaintiff Bank's motion to reconsider on grounds of waiver. The Plaintiff Bank appealed, and the Appellate Court reversed, applying an exception to the waiver issue, in order to "ensure a consistent body of law on which national banks doing business in Illinois can rely."

The Appellate Court examined the Plaintiff Bank's "ultimate contention as that the trial court misapplied section 13.70 of the [Illinois Business Corporations] Act in dismissing its claim." As you may know, Section 13.70 of the Act "requires a foreign corporation to obtain a certificate of authority in order to maintain a civil action in any court of the state." See 805 ILCS 5/13.70. However, "there are situations where it does not need such a certificate." "For example, if a foreign corporation is engaged in only occasional transactions in the state, it need not obtain a certificate of authority. Also, if a foreign corporation is conducting interstate commerce, it is not required to obtain a certificate of authority." In addition, "Defendants here bear the burden of proving that [the Plaintiff Bank] was transacting business in the state without a certificate in violation of the Act."

The Court held that Guarantors failed to meet their burden, reasoning that "on a section 2-619 motion to dismiss, Guarantors cannot satisfy this burden merely by showing that [the Plaintiff Bank] is a foreign

corporation without a valid certificate of authority." Rather, Guarantors "must also allege facts showing that [the Plaintiff Bank] was not engaged in conducting interstate commerce." In this case, the "record shows that Guarantors argue only that [the Plaintiff Bank's holding company's] certificate has been revoked" and "therefore, dismissal of [the Plaintiff Bank's] complaint on that basis was error."