Mergers, Shareholder Rights and Statutes of Limitations

In a recent case involving claims by minority shareholders of breach of fiduciary duty and conspiracy against Exelon Enterprises Company, LLC and Exelon Corporation, the court stated that the three year statute of limitations under Illinois Securities Law (sect. 13 (D)) did not bar Plaintiff’s claims. 

The complaint that was filed in 2007, and alleged that Exelon orchestrated a sale of a subsidiary called InfraSource through a merger agreement and a series of transactions orchestrated in 2003.  The initial complaint alleged counts for fraud, negligence, breach of fiduciary duty, negligent misrepresentation and civil conspiracy. 

Exelon moved to dismiss based on the three year statute of limitations found under 13 (D) of the Illinois Securities Law asserting that the claims related to the merger and transactions that occurred in 2003.  Plaintiffs amended their complaint and only asserted breach of fiduciary duty and civil conspiracy.  Exelon renewed its motion to dismiss based on the Illinois Securities Law’s three year statute of limitations. (815 ILCS 5/13 (D)). 

The Appellate Court upheld the trial court’s denial of Exelon’s renewed motion to dismiss.  The Appellate Court, reasoned that the plain meaning of section 13 (D) and the principles of statutory construction required a denial of Exelon’s motion to dismiss.  The Appellate Court reasoned that Sect. 13 (D)’s remedies were limited to prospective relief and were not designed to limit retroactive relief. 

 The Illinois Appellate Court relied upon the Northern District Court decision in Guy v. Duff & Phelps, 628 F. Supp.2d (N.D. Ill. 1985).  In so doing, the Illinois Appellate Court distinguished and explicitly rejected the policy rationale of the Seventh Circuit in Klein v. George G. Kerasotes Corp., 500 F.3d 669 (7th Cir. 2007) (finding that section 13 (d) applied to a seller and provided retrospective right of rescission that was subject such claims to a three year statute of limitations period). 

The bottom line is that minority shareholders have a longer period of time to assert breach of fiduciary duty, minority shareholder oppression, fraud and conspiracy related claims in a merger or acquisition scenario.  We shall see how the Appellate Court’s rationale is applied and upheld in subsequent decisions, but it is a significant change in Illinois Corporate  and Securities law. 

Exelon Case

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