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Partner Must Show Damages for Breach of Fiduciary Duties to Recover in a Lawsuit

A plaintiff seeking to recover on a breach of fiduciary duty claim against a business partner must be able to show more than just evidence of his partner’s bad conduct, but must also demonstrate that he suffered measurable damages as a result of the conduct.

For almost a decade, JAP, Inc. and Today’s Sushi Corp. jointly owned and operated trendy Chicago eatery Sushi Wabi, cashing in on the burgeoning national sushi craze. In 1998, Angelo G., owner of JAP, and Angela L. and Susan T., owners of Today’s Sushi, entered a limited partnership agreement to open the Randolph Street restaurant, with each entity owning about half of the enterprise. The venture capitalized on Angela and Susan’s experience operating sushi restaurants, with JAP providing most of the investment funds. The partnership agreement gave each partner full power of management and control of the operation of the business by unanimous consent. Angelo’s brother Franco was made manager of Sushi Wabi and put in charge of daily decision-making, with Angelo to be consulted on “major” decisions. Things soured when Angela and Susan attempted to remove Franco as manager. JAP brought breach of fiduciary duty and conversion claims against the pair, and filed for an accounting and dissolution of the partnership. In its complaint, JAP alleged 19 separate bases for breach of fiduciary duty and demanded consequential and punitive damages.

JAP accused Today’s Sushi’s owners of breaching their fiduciary duty by, among other things, hiring a new sushi chef and making him a limited partner without JAP’s consent, spending partnership funds on employee ski trips over JAP’s objections, and giving themselves bonuses also over JAP’s objections. The Cook County trial court agreed on those three points, awarding JAP $84,800 in damages, later reduced to $73,358. The court denied JAP’s conversion claim and accounting request, but granted its request for judicial dissolution of the partnership and wind-up.

However, the court denied JAP relief on 16 of its other breach of fiduciary accusations against Today’s Sushi, including failure to be consulted on building leases or to be named on liquor and business licenses. On appeal, the First District Appellate Court upheld the judgment, stating that JAP could not prove or measure how it suffered harm from these actions.

JAP had argued that the partnership need not have sustained a measurable loss for the defendants to be found in breach of fiduciary duty, and that money damages should not have been considered an element of the claims. The appellate court disagreed, noting that it is established case law that in a breach of fiduciary duty action, plaintiffs must prove that a defendant’s conduct was the proximate cause of their injury before they can recover, even in intentional torts. In addition, “a party seeking damages must provide a reasonable basis for computing them,” Justice Lavin wrote, citing to Lawlor v. North American Corp. of Illinois, 983 N.E.2d 414 (Ill. 2012) and Int’l Capital Corp. Act v. Moyer, 347 Ill.App.3d 116 (2004).

“[JAP] failed to provide sufficient evidence that the other 16 allegations actually caused any injury or that the injury was even calculable,” Lavin concluded in rejecting the company’s appeal.Super Lawyers named Illinois business trial attorneys Peter Lubin and Vincent DiTommaso Super Lawyers in the Categories of Class Action, Business Litigation and Consumer Rights Litigation. DiTommaso-Lubin’s Illinois business trial lawyers have over a quarter of century of experience in litigating complex class action, copyright, non-compete agreement, trademark and libel suits, consumer rights and many different types of business and commercial litigation disputes including lawsuits between businesses or between shareholders and owners of the same business.  Our Niles, Evanston and Skokie business dispute lawyers handle emergency business law suits involving copyrights, trademarks, injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist businesses and business owners who are victims of fraud. You can contact us by calling (630) 333-0000 or our toll free number (877) 990-4990.  You can also contact us online here.