Abuse of trust is considered a breach of the fiduciary duties owed by the trustee of a will or estate. When an individual decides how to distribute his or her estate among one or more beneficiaries, he or she will typically name a trustee who will be responsible for carrying out those wishes. A trustee may be a person or an organization and, in fact, can be anyone specified by the deceased, from a family member or friend to a lawyer to a financial investment company.

Depending on the size of the estate and the complexity of the deceased’s instructions, acting as a trustee can involve coordinating with multiple beneficiaries and being entrusted with distributing millions of dollars. Whenever there is a lot of money and someone in a position of trust, there is a potential for abuse. When a person in a position of trust, like a trustee, abuses that trust, it can be devastating for all involved.

If the trustee does not perform its duties in a careful and loyal manner as instructed, the trustee has engaged in an abuse of trust and breached its fiduciary duties. Because a trustee is expected to make judgment calls at times regarding the best disposition of the estate, it can be difficult to determine if an abuse of trust has taken place. This is where it can be useful to consult with an experienced breach of fiduciary duty attorney as not all breaches are cut and dried. Continue reading ›

After passing one of the strictest non-compete laws in the nation, the District of Columbia Council has responded to criticisms about the bill by passing the Non-Compete Clarification Amendment Act of 2022 which significantly scales back key aspects of the non-compete ban law enacted back in 2021 but which has not yet gone into effect after the Council has delayed its enactment several times in response to feedback from employer groups.

The non-compete ban, passed by the Council in 2020 and enacted in 2021, sought to impose a near-universal ban on simultaneous and post-termination employment restrictions for employees working in D.C. Since the inception of the ban, it has been subject to much criticism and numerous extensions of its effective date. However, the Clarification Amendment, which will take effect on October 1, 2022, changes the scope of the ban from nearly all non-compete agreements to only those whose total annual compensation is less than $150,000 ($250,000 for medical specialists). Compensation is defined to include more than just salary but accounts for bonuses, commissions, overtime premiums, and vested stock as well but does not include “fringe benefits other than those paid to the employee in cash or cash equivalents.”

The Clarification Amendment will now proceed to the desk of the Mayor, where it is expected to be signed, and then will be subject to a 30-day congressional review period which likely will expire in mid-to-late November. The amendment contains a number of significant “clarifications” to the non-compete ban law and gives D.C. employers options for utilizing non-compete agreements and other policies, such as conflict of interest policies, that were set to be prohibited. Continue reading ›

We have previously written about President Biden’s Executive Order in which he encouraged the Federal Trade Commission (FTC) to crack down on the “unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” Since the issuance of that Executive Order the FTC has ramped up its efforts to curtail the use of such restrictive covenants using existing antitrust and unfair competition laws. Additionally, the FTC held a two-day workshop in December 2021, called “Making Competition Work: Promoting Competition in Labor Markets,” at which industry leaders and professionals held panel discussions on antitrust and labor issues.

However, until recently, the FTC had not issued any formal guidance outlining its strategy for accomplishing the outcome sought in the President’s Executive Order. Recently the FTC began to articulate a unified strategy to respond to the President’s challenge. Last month, we began to see the agency’s execution of that strategy.

In June, the FTC published an administrative complaint challenging an acquisition by Arko Corporation and its subsidiary GPM Investments, LLC of 60 gasoline and diesel fuel outlets located in Michigan and Ohio from the Corrigan Oil Company. As part of the sale, Corrigan agreed not to compete against Arko and GPM in the areas surrounding the 60 fuel outlets included in the sale, as well as other GPM locations encompassing in total more than 190 locations. The restrictive covenant part of the sales agreement precluded Corrigan from participating in the sale, marketing, and supply of gasoline and diesel fuel in the territory surrounding these locations.

The FTC’s complaint challenged the sale as anticompetitive because of the particulars of the non-compete provisions in the sales agreement and its anticompetitive effect on the impacted markets. As mentioned, the fuel outlets being acquired are located in Michigan and Ohio. However, the FTC has alleged that the non-compete provisions reduced (or eliminated) GPM’s competitors in market territories throughout Michigan, and lacked any “reasonable procompetitive justification” for their application to the GPM locations unrelated to the transaction. The FTC alleges that these covenants not to compete violate Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act. Continue reading ›

In today’s society, license agreements are everywhere. With the advent of Software as a Service (SaaS) and web-based services, click-wrap or clickthrough agreements—agreements where the licensee agrees to the terms of the license agreement by clicking a button or ticking a box—are commonplace. The software and online services industries depend on such agreements. Recently however, a federal district court judge out of the Northern District of California issued a potentially industry-shaking ruling invalidating amendments to such click-wrap agreements unless a user is required to manifest assent to such amendments through something more than mere continued use of the service.

The defendant in the suit is Dropbox and the plaintiff is a user of Dropbox’s online file storage service. The plaintiff, who filed the suit pro se, alleged that he suffered injury as a result of a 2012 data breach which the plaintiff alleged involved the compromise of his Dropbox account. In response to the complaint, Dropbox moved to compel arbitration arguing that its amended terms of service (TOS) required the claim to be resolved through binding arbitration instead of a lawsuit. Continue reading ›

As non-compete agreement attorneys, we often write on the topic of restrictive covenants and developments in the area of law across the country. Frequently, we review judicial opinions that involve courts analyzing the specific terms of non-compete agreements in order to determine whether to uphold or invalidate such agreements. In this post, we will examine a recent decision in which a former employer succeeded in obtaining a temporary restraining order (TRO) enjoining several former employees from working for a competitor. The twist in this case is that none of the former employees are accused of violating a non-compete agreement by working for the competitor because none of the former employees had a non-compete agreement.

DistributionNOW (DNOW), the plaintiff in the suit, is a Houston-based distribution company for the energy sector. The defendants in the suit are several former employees who left DNOW to work for a competitor, Permian Valve. According to the former employer’s complaint, the four defendants left DNOW to join a competitor and allegedly took confidential files and documents containing sensitive and proprietary information with them. Additionally, the complaint accuses one of the defendants, Toby Eoff, of poaching at least 20 employees from DNOW to join the competitor.

Eoff was the former majority owner of Odessa Pumps, a company that DNOW purchased for over $170 million. The complaint alleges that Eoff stayed with DNOW until he retired in April 2022 from his position as Executive Vice President. After retiring, the complaint alleges that Eoff took with him multiple files that contained “highly sensitive DNOW business information.” The complaint also alleges that another of the defendants took an employee list with him when he left DNOW. Continue reading ›

The United States Court of Appeals for the Seventh Circuit recently decided a case concerning the enforceability of an arbitration clause in a trade secret dispute. In its decision, the Court affirmed the district court’s ruling that denied a defendant’s motion to enforce an arbitration clause in a software license agreement entered into under false pretenses by one of the defendant’s employees using the name of a fake company at the request of the defendant.

The two companies involved in the lawsuit, CCC Intelligent Solutions and Tractable, are competitors that provide estimates for the cost of repairing damaged cars and trucks to their customers, including insurance companies. Both do this by applying algorithms, embedded in their software, to data generated by body shops and other repair centers. CCC is a leader in the industry.

CCC licenses its software to third parties. That license prohibits licensees from disassembling the software code or incorporating it into other software. Further the license, forbids a customer from assigning the license without CCC’s consent and requires the licensee to affirmatively represent that he or she is not acting as an agent of any third party. The license includes an arbitration clause. Continue reading ›

The Federal Trade Commission is taking action against motorcycle manufacturer Harley-Davidson and Westinghouse outdoor generator maker MWE Investments for illegally restricting customers’ right to repair their purchased products. The FTC has charged that the companies’ warranties included terms that conveyed that the warranties would be void if customers used independent dealers for parts or repairs. The FTC has ordered that Harley-Davidson and MWE Investments to take several corrective actions including removing illegal terms and recognizing the right to repair in their warranties, making corrective notices to their respective customers, and instituting new policies to ensure that dealers compete fairly with independent third-parties for parts and repair work.

In recent months, the FTC has prioritized its protection of consumers’ right to repair their products. Right-to-repair was part of a sweeping executive order that President Joe Biden signed last summer. The FTC’s primary tool for addressing right-to-repair issues is the Magnuson-Moss Warranty Act (MMWA), which prohibits companies from conditioning warranty coverage on a consumer’s use of any article or service identified by brand name unless it is provided for free.

Harley-Davidson is one of the most recognized motorcycle brands worldwide. MWE Investments sells Westinghouse-brand outdoor power generators and related equipment. The products of both companies come with limited warranties that provide for no-cost repair or replacement in the event the products are defective or suffer from other issues.

According to the FTC’s complaints, the terms of both companies’ warranties violated the MMWA by voiding customers’ warranties if they used anyone other than the companies and their authorized dealers to get parts or repairs for their products. The FTC also alleged that Harley-Davidson failed to fully disclose all of the terms of its warranty in a single document, requiring consumers to contact an authorized dealership for full details. The FTC’s complaints outlined how these terms allegedly harm consumers and competition, including by:

  • Restricting consumer choice regarding who performed service and repair work.
  • Increasing costs to consumers by requiring them to use potentially more expensive OEM options.
  • Depriving independent dealers and manufacturers of aftermarket parts of the ability to compete on a level playing field.
  • Reducing resiliency by leaving consumers at the mercy of branded part supply chains and increasing waste in the form of products that could otherwise be fixed.

Continue reading ›

As we have written about previously, shareholders in a corporation have two different types of claims they can assert, direct claims and derivative claims. Direct claims are filed by the shareholder for the benefit of the shareholder. Derivative claims are filed by a shareholder but for the benefit of the corporation itself. An Illinois appellate court recently considered the issue of whether a successful shareholder in a derivative action can obtain an award of attorney fees directly from the defendants personally, as opposed to from the common fund created by the judgment.

The parties were investors in a business known as 15th Street Blue Island, LLC (15BI). The plaintiffs made financial contributions totaling approximately $3.7 million to become members of 15BI. The plaintiffs received 47% interest in 15BI as “Class A Members.” An entity owned by defendants Jerry Karlik and Keith Giles, Kargil Blue Island, LLC (KBI), received a 53% interest in the company as a “Class B Member,” and was named as the manager of 15BI.

15BI was formed in 2006 for the purpose of developing condominiums on a vacant parking lot located in Chicago. After the economic crash of the global recession that began shortly thereafter, the original business plan was scrapped for a new one that involved developing rental residences, which was considered a more feasible plan under the economic conditions.

In 2006, another entity jointly owned by Jerry Karlik and Giles, Kargil Development Partners (KDP), entered into a contract to purchase a vacant parking lot (15BI Property) located at 15th Street and Blue Island Avenue in Chicago for $3.72 million. Pursuant to that agreement, KDP deposited an initial earnest money payment of $100,000 from 15BI accounts into an escrow account. In June 2007, Karlik signed a purchase agreement on behalf of 15BI to acquire property known as the Testa Parcel, for $6,250,000. This purchase agreement also required a $100,000 earnest money deposit from 15BI. In an unusual move for a buyer, Karlik later negotiated a $250,000 increase in the purchase price and provided for payment of a commission to yet another company that he and Giles jointly owned. 15BI later abandoned its efforts to buy the Testa Parcel, resulting in 15BI losing 70% of its earnest money deposit.

In 2008, Karlik and Giles sold a portion of KBI, which managed and owned a percentage of 15BI, to new investors, Gangas and Housakos, for approximately $750,000. Karlik testified that the law firm of Branson & Kahn invoiced 15BI and 15BI paid for its work on that sale.

Defendants stipulated that work “should not have been billed through 15B1.” Continue reading ›

An Illinois Appellate Court recently affirmed a ruling dismissing the defamation claims filed by a manager of a homeowners association stemming from comments made about him during a meeting of the HOA. The Court ruled that the manager could not maintain his claims because the allegedly defamatory comments were protected from liability by qualified privilege.

The plaintiff in the case, Philip Kiss, managed the HOA from 2010 to 2016 and also served as its attorney during this time. The board relieved Kiss of his duties in 2016. In November 2017, one of the board members, Ellen Sheldon, stated during a meeting of the HOA, “I don’t want a person who comes to a homeowners meeting drunk managing our … association and he came drunk in 2015.” In response to a question asking how she knew Kiss was drunk, Sheldon said, “because he stood right at my face and he breathed at my face which was unbelievable[.] I wanted to pass out. And he could not speak clearly. [T]he man did not belong managing us[.] [T]hank God he’s not anymore.”

Kiss sued both the HOA and Sheldon alleging defamation and false light invasion of privacy. The defendants moved to dismiss the complaint arguing, in part, that the statements were protected by qualified privilege because they were made during a board meeting of the HOA. After several amendments to Kiss’s complaint, defendants again sought to dismiss the claims based on qualified privilege. The trial court granted the defendants’ motion and dismissed the claims with prejudice. Kiss appealed arguing that the trial court improperly dismissed his claims and refused to allow him to re-plead his claims for a fifth time. Continue reading ›

In a recent decision, the Seventh Circuit federal court of appeals reaffirmed the limited role courts have in reviewing arbitration awards. The decision also provides a lesson to litigants about the need for a clearly written and well-reasoned arbitration decision.

The case stems from a fallout between a technology company and an inventor turned equity owner in the company. The defendant Roe invented a nozzle that transforms gases into liquids. Nano Gas expressed interest in acquiring and commercializing the technology. The parties embarked on negotiations resulting in Roe assigning the nozzle to Nano Gas in exchange for a 20% ownership of Nano Gas, a board seat, and a potential salary. Under the terms of the parties’ agreement, Roe’s salary was tied to either Nano Gas successfully raising capital or Roe’s developing his invention into a working machine. Before either milestone could be reached, the parties’ relationship soured.

Roe ultimately left Nano Gas and took with him a prototype machine and a box of Nano Gas’s intellectual property. The parties initially began litigation in a Michigan federal court before the dispute was referred to arbitration. Following a hearing, the arbitrator entered an award generally favoring Nano Gas but awarding compensation to both parties.

The arbitrator found that Nano Gas should compensate Roe for the continued use of his invention. It also found though that Roe should compensate Nano Gas for the financial harms he caused when he continued to use the technology he assigned to Nano Gas and made off with Nano Gas’s intellectual property. The arbitrator considered awarding Roe some sort of royalty on future profits that might flow from Nano Gas’s use of the device Roe invented, but in the end decided against this approach. The arbitrator determined a royalty was not necessary to compensate Roe because he “remains a major shareholder in Nano Gas, and that, as such, he could benefit financially from this in the future should Nano Gas experience profitability and an increase in value.”

Ultimately, the arbitrator ordered Roe to return Nano Gas’s intellectual property or pay Nano Gas $150,000 if he did not return the IP. Then the arbitrator ordered Roe to pay damages to Nano Gas in the amount of $1,500,000, with such payment “to be made by (1) first, subtracting from the amount to be paid to Roe by Nano Gas under this decision ($1,500,000) the amount to be paid to Nano Gas by Roe under this decision ($1,000,000) and (2) thereafter, the remainder ($500,000) in such manner as Roe chooses.” Continue reading ›

Contact Information