Wednesday, May 4, 2011

FYI: Ill 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

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."

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

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