Published on:

Financial Consultant Did Not Breach Fiduciary Duty to Bank Takeover Candidate, Appeals Court Rules

 

A trial court was correct to find for defendants in a breach of fiduciary duty and constructive fraud lawsuit, the First District Court of Appeal ruled March 20. In Prodromos v. Everin Securities Inc., No. 1-06-3685 (1st. Dist. March 20, 2009), plaintiff John Prodromos sued Everin Securities, Inc., its predecessor company, Daniel Westrope and Dennis Klaeser over an allegedly stolen opportunity.

Prodromos was a former president and CEO of Howard Savings Bank, a family business. He was fired by his sister in 1994 after he was fined by the FDIC for failing to waive a fee and for violations of state law. In 1998, he wanted to purchase Home Federal Bank, which was looking for an investor, but needed help. He approached his broker at Everin, who connected him to Westrope, an investment banker there. After a meeting attended by all three, Westrope agreed to contact shareholders at Home Federal about voting for Prodromos in a proxy vote, but no agreement was signed and no fees were paid.At the time, Westrope had already been hired away from Everin by State Financial Services Corporation, something he did not disclose to Prodromos.

After Prodromos submitted some follow-up information to Westrope, the latter man was not responsive to messages from Prodromos. About a month after the meeting, Westrope moved to State Financial. His replacement at Everin, Klaeser, told Prodromos that Everin would not support his purchase attempt because it would be bad for the firm’s investment banking business. Prodromos met with several other banks and an attorney, but did not follow up with most. He did strike a deal for financing through Success Bank, but that deal fell through when one of the Success officials involved died suddenly. His efforts ended. A few months later, State Financial acquired Home Federal and installed Westrope as CEO and president of the bank.

Prodromos sued Everin, its predecessor, Westrope and Klaeser for breach of fiduciary duty and constructive fraud. The defendants were granted partial summary judgment, but Prodromos appealed and the First District Court of Appeal reversed and remanded that decision. On remand, Prodromos requested and did not receive a jury trial because the law does not require one for breach of fiduciary duty claims. After Prodromos presented his case at a bench trial, the court granted defendants’ motion for a directed finding. Prodromos now appeals both that decision and the decision to deny him a jury trial.

The First District Court of Appeal affirmed those decisions. It first considered the motion for a directed judgment, which Prodromos argued should not have been granted without requiring the defendants to prove that the State Financial-Home Federal transaction was fair and equitable. The court disagreed, noting that nothing in its first decision (Prodromos I) or Illinois caselaw requires that a court consider every element of a claim for breach of fiduciary duty. The trial court did not find that the defendants’ conduct proximately caused Prodromos to lose the opportunity to buy Home Federal, they wrote, and that was enough to defeat the breach of fiduciary duty claim.

Furthermore, the court wrote, Prodromos did not make his case because he was unable to show that he would have been able to close the deal if it weren’t for the defendants’ actions. And undisputed testimony shows that he did not enter into an agreement with Westrope, so he was free to pursue the acquisition opportunity elsewhere. He did not, despite evidence that the time to make such a deal was running out.

The court then took up the jury trial issue. Under Illinois law, plaintiffs are entitled to a jury trial if that right existed in English common law at the time the Illinois Constitution was written. Breach of fiduciary duty and constructive fraud are both equitable claims, the First District pointed out — and equitable claims were not tried with the right to a jury. None of the caselaw Prodromos cited effectively contradicted the Illinois Supreme Court’s holding on that subject, the court said. Thus, the trial court was correct to deny Prodromos a right to a jury trial, and both rulings were affirmed.

The experienced business litigation attorneys at DiTommaso-Lubin have substantial experience on both plaintiff and defense sides of breach of fiduciary duty, stolen corporate opportunity, corporate freeze out and squeeze out cases and partnership and shareholder disputes involving closely held businesses or family businesses. Our Chicago and Oak Brook business trial attorneys and commercial litigation lawyers handle all types of business and commercial disputes, including stolen corporate opportunities, breach of contract and business fraud litigation. From offices in Chicago and Oak Brook, Illinois, our business litigation lawyers represent clients throughout the state of Illinois and the Midwest, in state and federal courts. To learn more about our experience and your own legal options, please contact DiTommaso-Lubin online or call us toll-free at 1-877-990-4990.