ARSHAD UMRANI, an Individual; MUNWAR JATOI, an Individual; and SINDHI ASSOCIATION OF NORTH AMERICA, a New York Nonprofit, Plaintiffs-Appellants, v. SINDHI ASSOCIATION OF NORTH AMERICA, a New York Nonprofit; JAMIL DAUDI, an Individual: AIJAZ KOLACHI, an Individual; NOOR-U-NISA GHANGHRO, an Individual; IRSHAD KAZI, an Individual; ZULFIQAR SHAIKH, an Individual; AIJAZUL HAQUE, an Individual; SAFDAR PANHWAR, an Individual; MANSOOR SAMOO, an Individual; KHALID CHANA, an Individual; AWAIS LAGHARI, an Individual; KHALIL MEMON, an Individual; AIJAZ H. TURK, an Individual; and VALEED SHAIKH, an Individual, Defendants-Appellees.
No. 1-20-0219
Appellate Court of Illinois, First District, Fourth Division
September 16, 2021
2021 IL App (1st) 200219
Hon. Sophia H. Hall, Judge, presiding.
Decision Under Review: Appeal from the Circuit Court of Cook County, No. 14-CH-18874. Judgment: Affirmed.
Thomas J. Nitschke, of Blaise & Nitschke, P.C., of Chicago, for appellants.
Lawrence S. Gosewisch and Richard C. Harris, of Adler Murphy & McQuillen LLP, of Chicago, for appellees.
Justices Gordon and Martin concurred in the judgment and opinion.*
OPINION
¶ 1 Plaintiffs Arshad Umrani, Munwar Jatoi, and the Sindhi Association of North America (SANA), appeal an order of the circuit court of Cook County granting a motion to dismiss filed on behalf of SANA, Jamil Daudi, Aijaz Kolachi, Noor-u-nisa Ghanghro, Irshad Kazi, Zulfiqar Shaikh (Shaikh), Aijazul Haque, Safdar Panhwar, Mansoor Samoo, Khalid Chana, Awais Laghari, Khalil Memon, Aijaz H. Turk, and Valeed Shaikh (Valeed) (collectively, defendants). The circuit court dismissed the amended complaint on two bases: (1) lack of standing as to all of the defendants and (2) lack of personal jurisdiction over all but one defendant, Memon (a Cook County resident). On appeal, plaintiffs maintain that the circuit court erred in dismissing the amended complaint for lack of standing as to certain defendants as they waived any lack of standing defense by failing to raise it in their respective answers. Plaintiffs further contend that the circuit court has personal jurisdiction over all of the defendants and therefore dismissal on that basis was also improper. For the reasons that follow, we affirm.
¶ 2 BACKGROUND
¶ 3 On November 21, 2014, plaintiffs Umrani and Jatoi brought a derivative action in the name of SANA, a not-for-profit corporation organized under New York state law. SANA is a society of individuals living in North America who are of Sindhi descent. The defendants reside in various areas throughout the United States and Canada; only Memon is a resident of Cook County.
¶ 4 The operative amended complaint, filed on May 26, 2015, alleged there were efforts by certain SANA officeholders to maintain power within SANA by interfering with the association‘s election process and attempting to circumvent the bylaws of the association both during and after a SANA convention held in Chicago. The operative complaint further alleged that SANA executive council members (Daudi, Ghanghro, Kazi, Haque, and Memon) and other SANA officeholders (Kolachi, Panhwar, Samoo, Chana, Shaikh, Laghari, Turk, and Valeed) breached their fiduciary duties of care, loyalty, and obedience; committed fraud; and spoliated evidence. While plaintiffs alleged in portions of their complaint that all of the defendants engaged in the same misconduct, they also alleged specific misconduct committed by each individual defendant. In their complaint, plaintiffs also distinguished between acts committed by defendants who were members of the executive council and acts committed by all defendants. These allegations of misconduct, however, are not relevant to the issues on appeal.
¶ 5 Pertinent to this appeal, defendants were originally represented individually by two different attorneys. Certain defendants filed a motion to dismiss and the
¶ 6 Plaintiffs appealed the circuit court‘s ruling on the motion to dismiss. We dismissed the matter for lack of jurisdiction as the circuit court‘s ruling was not a final judgment and as it also did not dispose of all of the defendants to the appeal. Umrani v. Sindhi Ass‘n of North America, 2018 IL App (1st) 162081-U, ¶ 13.
¶ 7 On remand, a single attorney was granted leave to file an appearance on behalf of all of the defendants. Defendants then filed a motion to dismiss arguing (1) plaintiffs lacked standing to bring a derivative lawsuit under the New York Not-For-Profit Corporation Law (Not-For-Profit Law) (
¶ 8 The circuit court held a hearing on the motion to dismiss; however, no transcript of the hearing is included in the record on appeal. After considering the arguments of the parties, the circuit court granted defendants’ motion to dismiss for lack of standing and, in the alternative, for lack of personal jurisdiction over each of the defendants except Memon, a resident of Cook County. This appeal followed.
¶ 9 ANALYSIS
¶ 10 Jurisdiction
¶ 11 Prior to addressing plaintiffs’ claims on appeal, we address our jurisdiction. Defendants maintain that we lack jurisdiction to consider plaintiffs’ argument that certain defendants waived standing where the issue of standing was not expressly raised in the notice of appeal.
¶ 12 The notice of appeal serves the dual purpose of vesting the reviewing court with jurisdiction and informing the prevailing party that the unsuccessful litigant seeks review by a higher court. Waste Management, Inc. v. International Surplus Lines Insurance Co., 144 Ill. 2d 178, 188 (1991).
¶ 13 Here, plaintiffs stated in the notice of appeal that they were appealing from the circuit court‘s January 3, 2020, order dismissing the amended complaint. They also indicated in the section entitled “Relief sought from Reviewing Court” to “[r]everse the grant of dismissal to all
¶ 14 Lack of Standing
¶ 15 As discussed, the circuit court dismissed the complaint under two different bases. First, it dismissed the amended complaint in its entirety with prejudice due to plaintiffs’ lack of standing. In the alternative, the circuit court dismissed the amended complaint as it lacked personal jurisdiction over all but one defendant, Memon, a Cook County resident. For the following reasons, we agree with the circuit court‘s first basis for dismissal and find that plaintiffs lack standing to bring their causes of action. See Mullins v. Evans, 2021 IL App (1st) 191962, ¶ 25 (“We may affirm on any basis appearing in the record, whether or not the trial court relied on that basis or its reasoning was correct.“).
¶ 16 Standard of Review
¶ 17 The purpose of a section 2-619 motion to dismiss is to dispose of issues of law and easily proved issues of fact at the outset of litigation. Zedella v. Gibson, 165 Ill. 2d 181, 185 (1995).
¶ 18 The question at issue here is one of standing, which may be raised under subsection (a)(9), “[t]hat the claim asserted against defendant is barred by other affirmative matter avoiding the legal effect of or defeating the claim.”
¶ 19 Waiver
¶ 20 Prior to addressing the propriety of the circuit court‘s dismissal of the amended complaint, we will consider plaintiffs’ argument that certain defendants waived their lack of standing defense by filing an answer to the original complaint.1 Plaintiffs observe that, in cases involving the
¶ 21 Defendants disagree that answers were filed and maintain that the documents to which plaintiffs are referring are merely appearances they individually filed. Defendants describe these documents, which were filed with the circuit court, as letters in which Kazi, Daudi, Ghanghro, and Haque stated they were represented by counsel and set forth a general denial of the allegations of the complaint. Regardless, defendants contend that they timely raised the issue of standing in their motion to dismiss and therefore it was not waived.
¶ 22 For a section 2-619 motion to be properly brought, it must not only concern a listed ground, but it must also be filed “within the time for pleading.”
¶ 23 We agree with defendants that the documents plaintiffs refer to as “answers” do not qualify as such. As was long-ago established by our supreme court, an answer
“has, in general, a two-fold property. First, meeting the allegations of the bill, and second, a statement to the court of the nature of the defense on which the defendant means to rely; and in this respect the answer fulfills the duty of a plea, or a series of pleas, either denying facts upon which the plaintiff‘s equity, as stated in the bill, arises, or by confessing such facts, and avoiding them by the introduction of some new matter, from which contrary inferences may be drawn.” Stone v. Moore, 26 Ill. 165, 171-72 (1861).
Our review of the record demonstrates that these letters have none of these characteristics. See id. These are generic letters written by Kazi, Daudi, Ghanghro, and Haque to the clerk of the circuit court and do not include “an explicit admission or denial of each allegation of the pleading to which it relates” as required by the Code.
¶ 24 This determination is also supported by the record in this case. We first note that an attorney for Kazi, Daudi, Ghanghro, and Haque filed his appearance on April 17, 2015, along with a motion for extension of time to file an answer or otherwise plead. In that motion, counsel indicated that these defendants had not been held in default and requested 28 days to answer or otherwise plead. Thus, counsel did not view these letters as proper “answers” under the Code. Second, plaintiffs themselves filed two motions for default judgment (on May 4, 2015, and again on August 19, 2015) against Kazi, Daudi, Ghanghro, and Haque. In their first motion for default judgment plaintiffs asserted that Kazi, Daudi, Ghanghro, and Haque have appeared “but have not responded to Plaintiffs’ complaint.” Plaintiffs also acknowledged that “[m]ore than thirty (30) days has passed since service of process was made upon [them] and no answer, nor any response has been made by [them].” In their second motion for default judgment, plaintiffs again indicated no answer had been filed and noted that these defendants, without requesting an extension of time, filed their motion to dismiss one day late. It is blatantly inconsistent for plaintiffs to take the position that no answers had been filed and request the circuit court enter a default judgment and then argue—five years later—that these defendants waived the defense of standing by not including the affirmative defense in these so-called “answers.”
¶ 25 In reaching this conclusion we have considered the mortgage foreclosure cases cited by plaintiffs and find them to be distinguishable from this case. In Kosterman, the defendant raised the issue of standing as an affirmative defense in his answer. Kosterman, 2015 IL App (1st) 133627, ¶ 8. In contrast, defendants here raised the issue of standing in a motion to dismiss pursuant to section 2-619(a)(9) of the Code
¶ 26 Iordanov is similarly inapplicable. In Iordanov, this court found the defendant waived the affirmative defense of lack of standing as he (1) failed to raise it in either of his answers, (2) participated in the proceedings and received a benefit therefrom, and (3) did not raise the plaintiff‘s lack of standing to foreclose until he presented that argument in his response to the motion to confirm the sale. Iordanov, 2016 IL App (1st) 152656, ¶ 40. We note that the confirmation of the sale in a mortgage foreclosure proceeding is the final step in the mortgage foreclosure process. See
¶ 27 Having found defendants timely raised the issue of standing in the motion to dismiss, we turn to consider the main claim on appeal, whether the circuit court properly dismissed the operative complaint.
¶ 28 Standing
¶ 29 We initially observe that other than arguing certain defendants waived the standing defense by failing to raise it in their “answers,” plaintiffs posit no argument as to why the circuit court‘s ruling on the standing issue was error. In their response brief, defendants maintain that that plaintiffs’ failure to argue this aspect of the circuit court‘s ruling on appeal means that plaintiffs have abandoned and forfeited this argument. Forfeiture aside, defendants assert the circuit court correctly dismissed the operative complaint for lack of standing as members of SANA (a New York not-for-profit) cannot bring a derivative action on behalf of the corporate body unless he or she (1) contributed $1000 or more and (2) the certificate of incorporation or bylaws provide that such contributors have standing.
¶ 30 Although plaintiffs filed a motion for an extension of time to file a reply (which this court granted), they ultimately declined to file a reply brief.
¶ 31 Forfeiture aside, we find that the lawsuit was properly dismissed under section 2-619(a)(9) where plaintiffs lacked standing to bring this derivative action. As noted above, SANA is organized under New York law. That state has a statute that allows members of a not-for-profit corporation to bring a derivative action in the name of the corporation.2 Section 720(b) of the Not-for-Profit Law provides that a derivative action may be brought in the right of the corporation by any of the following:
“(1) A director or officer of the corporation.
(2) A receiver, trustee in bankruptcy, or judgment creditor thereof.
(3) Under section 623 (Members’ derivative action brought in the right of the corporation to procure a judgment in its favor), by one or more of the members thereof.
(4) If the certificate of incorporation or the by-laws so provide, and any holder of a subvention certificate or any other contributor to the corporation of cash or property of the value of $1,000 or more.”N.Y. Not-For-Profit Corp. Law § 720(b) (McKinney 2017) .
The pertinent portion of section 623(a) of the Not-For-Profit Law states that “[a]n action may be brought in the right of a domestic or foreign corporation to procure a judgment in its favor by five percent or more of any class of members.” Id.
¶ 32 We first consider whether section 720(b) applies in this case. Included in the record as part of the exhibits to the numerous motions to dismiss were the SANA bylaws. Upon consideration of the bylaws it is evident that there is no provision that allows members who have contributed $1000 or more to have standing to bring a lawsuit. Accordingly, plaintiffs cannot establish standing under section 720(b) of the Not-For-Profit Law. See id.
¶ 33 Regarding standing under section 623(a) of the Not-For-Profit Law, it is also apparent from the record that 5% of SANA membership has not joined in this lawsuit. Only two SANA members are named as plaintiffs, and the amended complaint alleges that between August 15, 2014, and September 15, 2014, the total membership of SANA expanded from 620 members to 1300 members. Taking as true the well-pled facts in the amended complaint—as we must—5% of 620 members is 31 members and 5% of 1300 members is 65 members. Therefore, even taking the
¶ 34 In reaching this conclusion, we find a New York state decision, Segal v. Powers, 687 N.Y.S.2d 589 (Sup. Ct. 1999), to be persuasive. See Allstate Insurance Co. v. Lane, 345 Ill. App. 3d 547, 552 (2003) (in the absence of Illinois authority on the point of law in question the reviewing court may look to other jurisdictions for persuasive authority). In that case, a derivative action was brought on behalf of the Downtown Athletic Club on the grounds that six former presidents of the Downtown Athletic Club wasted millions of dollars of assets resulting in damages of over $45 million. Segal, 687 N.Y.S.2d at 590. The defendants filed a motion to dismiss in which they argued that the plaintiff (a single individual) did not have standing under the Not-For-Profit Law despite having alleged in his complaint that “plaintiffs ‘were and continue to be members of record of the [Club] and in number constitute at least 5% of the total voting membership of 835.‘” Id. In granting the defendants’ motion to dismiss, the court found that while the plaintiff alleged that he represented more than 5% of the members of the Downtown Athletic Club, such an allegation was insufficient as standing should be determined at the beginning of the litigation. Relying on New York state case law, the court stated,
” ‘Whether a person seeking relief is a proper party to request an adjudication is an aspect of justiciability which must be considered at the outset of any litigation.’ [Citation.] ‘Standing is a threshold determination, resting in part on policy considerations, that a person should be allowed access to the courts to adjudicate the merits of a particular dispute that satisfies the other justiciability criteria.’ [Citation.]” Id. at 591 (quoting Dairylea Cooperative, Inc. v. Walkley, 339 N.E.2d 865, 867 (N.Y. 1975); Society of the Plastics Industry, Inc. v. County of Suffolk, 573 N.E.2d 1034, 1038 (N.Y. 1991)).
The court further found that “[t]he purpose of the 5% standing requirement [of the Not-For-Profit Law] is to prevent a not-for-profit corporation from having to incur legal expenses in defending litigation when there is not a showing that ‘at the time of bringing the action’ [citation] that there exists that minimum number of members supporting the suit.” Id. (quoting
¶ 35 While in Illinois, a plaintiff need not allege facts establishing that he has standing to proceed (see Wexler v. Wirtz Corp., 211 Ill. 2d 18, 22 (2004)); as Segal suggests, we cannot ignore the text of the Not-For-Profit Law, as it is what creates this derivative cause of action. Under section 623, an action may be brought in the right of a corporation to procure a judgment in its favor by 5% or more of any class of members.
¶ 36 CONCLUSION
¶ 37 For the reasons stated above, we affirm the judgment of the circuit court of Cook County.
¶ 38 Affirmed.