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Missed Deadline Bars Stolen Corporate Opportunities Claim, Appeals Court Rules

 

The doctrine of laches bars a plaintiff from bringing a stolen corporate opportunities lawsuit, the Illinois First District Court of Appeal has ruled. Lozman v. Putnam, No. 1- 06-0861 (February 18, 2008).

Plaintiff Fane Lozman and defendant Gerald Putnam met in 1986 as employees of the same Chicago securities firm. Eight years later, Lozman came up with an idea for a new type of software for traders, and hired another defendant, Townsend Analytics Inc., to program it. To market the software, Lozman and Putnam formed Blue Water Partners, Inc., an Illinois corporation, in 1994. Each was a 50% shareholder and a director. The plan was to barter the software for a share of a brokerage firm’s commissions on trades. Townsend Analytics and its owners, Stuart and Marrgwen Townsend, were offered 15% equity in Blue Water but no director or officer positions.

Later that year, Putnam formed Terra Nova Trading, LLC, with himself as 100% shareholder, to route profits from Blue Water. Another company, Analytic Services, LLC, was formed to sell the software, with Samuel Long as president. In April of 1995, Putnam and Lozman signed an agreement to share commissions generated through or paid by Townsend and its software. For a variety of personal and professional reasons, the relationship between Lozman and Putnam went sour, and they voluntarily dissolved the agreement six months later. A later termination agreement, back-dated to the day of the dissolution, preserved any legal claims. Putnam went on to form three more companies that used the same office and brokerage license as Blue Water, subcontracted with the Townsends and/or competed with Blue Water.

In 1999, Lozman sued for usurpation of corporate opportunity, breach of joint venture, unjust enrichment and fraudulent conveyance of assets. In court, the two men disagreed on the meanings of a variety of their agreements. After a tortuous procedural history including two previous appeals and a dual bench and advisory-only jury trial in the instant action, the court found for the remaining defendants. Among its findings was that the usurpation of corporate opportunities claims by Lozman and Blue Water were barred by laches — they had waited four years to file their claims. They appealed on that and other grounds, but the appeals court affirmed.

In its opinion, the court noted that plaintiffs claimed Putnam fraudulently breached a fiduciary duty to disclose certain facts, so the running of the laches claim should have started only after Lozman discovered the alleged breach. Prueter v. Bork, 105 Ill. App. 3d 1003, 1007 (1981). However, the court wrote, plaintiffs failed to explain what facts Putnam failed to disclose or when they learned of them, nor did they cite cases that supported their position. Furthermore, the change of circumstances during Illinois’ five-year statute of limitations for a breach of fiduciary duty precluded arguments that laches shouldn’t apply. Thus, the laches finding was upheld, as were the rest of the trial court’s findings.