De Fontaine v. Passalino

In De Fontaine v. Passalino (1991) 222 Ill. App. 3d 1018 584 N.E.2d 933, 165 Ill. Dec. 499, the defendant majority shareholder unsuccessfully cited Baker in its attempt to persuade the Appellate Court of Illinois to overturn the trial court's award of attorney fees in a shareholder derivative suit involving the two sole shareholders of the corporation. The court concluded: "If we were to adopt defendant's reasoning the court should follow Baker, we are confronted with the question of just how many beneficiaries are needed for the common-fund doctrine to apply. In small, closely held corporations, those who own the majority interests and control the corporation and are found liable to the corporation for certain damages could argue that they are penalized by an award of attorney fees from the corporation.... We find the better approach is to award plaintiff reasonable attorney fees from the corporation's common fund despite the fact that there are only two shareholders in this case." The appellate court endorsed the trial court's rationale for awarding attorney fees: "The trial court in the instant case noted that the common-fund doctrine was not applicable solely for 'passive beneficiaries.' It found that the doctrine encouraged meritorious derivative actions by small shareholders and that this purpose was applicable whether there were two shareholders or hundreds. The other purpose cited by the trial court was the benefit to the corporation for which it would have had to pay for itself."