Illinois Appellate Court Affirms Motion to Dismiss Derivative Lawsuit Where No Certified Answer was Filed by Defendants

Ashad Umrani and Mundar Jatoi, the plaintiffs, brought a derivative action on behalf of Sindhi Association of North America (SANA) against SANA and several SANA office holders. They alleged misconduct and breach of fiduciary duties, fraud, and spoliation of evidence against SANA executive council members and other office holders.

SANA is an organization under New York State law with office holders spread across North America. SANA is registered as a 501c non-profit organization that works to unite Sindhis in North America; to defend the national rights of Sindhi people; to foster understanding between Sindhis and other nationalities; and to educate people about Sindhi Civilization, according to the group’s website. The defendants, who include SANA office holders in multiple states, were represented by multiple attorneys.

Some of the defendants filed a motion to dismiss based on lack of personal jurisdiction, but others neither filed a motion nor joined the others. The circuit court judge granted the motion to dismiss but directed the parties to specify the order in which defendants were included. This was not done; instead, the motion to dismiss was granted and the defendants were not notified individually.

The plaintiffs appealed the motion to dismiss, but the court found it unripe as there were defendants yet to be disposed of, so it was dismissed for lack of jurisdiction. On remand, one lawyer filed on behalf of all of the defendants a motion to dismiss, arguing that the plaintiffs lacked standing and the court lacked personal jurisdiction over the defendants.

The Cook County judge granted the motion to dismiss for lack of standing and, in the alternative, for lack of personal jurisdiction over each of the defendants except Khalil Menon, who was a Cook County resident. The plaintiffs appealed.

On appeal, the defendants asserted that the plaintiffs failed to present an argument that the circuit court’s ruling on standing was in error. The defendants noted that under New York not-for-profit corporations law Section 20(b)(4), a member cannot bring a derivative action unless they have contributed more than $1,000 and the certificate of incorporation or bylaws permit them to do so, or unless they have a 5% membership in the organization.

The defendants asserted that the plaintiff did not meet those requirements. The plaintiff did not file a reply brief, forfeiting the issue. However, forfeiture aside, the appellate court found the circuit court had been correct in concluding that the plaintiffs lack standing under the New York law.

The plaintiffs instead asserted that a number of defendants were barred from raising the issue because they waived lack of standing by filing an answer to the original complaint. The defendants argued that they did not file answers, but merely appearances, and that they timely raised the issue of standing by including it in their motion to dismiss. The appellate court, examining the appearances by the defendants, found they did not constitute “answers” because an answer requires “First, meeting the allegations of the bill, and second, a statement to the court of the nature of the defense on which the defendants means to rely.” The letters filed on behalf of the defendants do not include an admission or denial of each allegation of the pleading, and no documents were filed were certified or made under oath as answers are required to be. Accordingly, the appellate court affirmed the decision dismissing the case by the circuit court judge.

Ashad Umrani, et al. v. Sindhi Association of North America, et al., 2021 IL App (1st) 200219 (Sept. 16, 2021).

Kreisman Law Offices has been handling business litigation matters, medical malpractice lawsuits, jury trials in Illinois, Illinois Appellate practice, and wrongful death cases for individuals, families and businesses for more than 45 years in and around Chicago, Cook County and its surrounding areas, including Hinsdale, Morton Grove, Mundelein, Naperville, Wheaton, Joliet, Romeoville, Plainview, Palos Park, Orland Park, Chicago (Rogers Park, North Lawndale, Austin, Washington Park, Jackson Park, South Shore, Bronzeville, Chinatown, Edgebrook), Calumet City, South Holland, Alsip, Olympia Fields and Bensenville, Ill.

Robert D. Kreisman has been an active member of the Illinois and Missouri bars since 1976.

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