Articles Posted in Breach of Fiduciary Duty

|

When Majority Owners Turn on Their Partners

In closely held corporations and limited-liability companies, majority owners sometimes forget that they owe duties to their partners. We see the same pattern again and again: a founder who built a business is gradually cut out of key decisions, denied access to financial information, removed from management, and eventually offered a take-it-or-leave-it buyout at a fraction of what the stake is actually worth.

These “squeeze-out” and “freeze-out” tactics can be subtle—changing compensation structures, diverting opportunities to new entities, or refusing to declare dividends while insiders pay themselves oversized salaries. In more extreme cases, they involve outright fraud: phony invoices to related companies, off-the-books revenue, or manipulated financial statements designed to hide the business’s true value.

We also regularly defend owners wrongfully accused on using freeze-out tactics.

Combining Oppression, Fraud, and Consumer-Fraud Theories

Our firm regularly represents minority owners who have been frozen out of the businesses they helped build controlling owners who allegedly have done that. Depending on the facts, we may bring claims for shareholder oppression, breach of fiduciary duty, common-law fraud, unjust enrichment, and, where appropriate, claims under statutes such as the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2, when deceptive tactics are used to induce an unfair buyout. We also are experienced at litigating affirmative defenses to these types of claims.

The same kinds of deceptive practices we see in consumer transactions—omitting material facts, presenting misleading financials, and papering over obvious discrepancies—often appear in freeze-out cases. When majority owners present inflated or deflated numbers to justify squeezing out a partner, we treat that as serious misconduct, not “hard bargaining.”

The Role of Forensic Accountants in Freeze-Out Cases

In many freeze-out disputes, the key question is simple to ask but hard to answer: what is the company really worth, and how much value has been diverted? To answer that, we bring in forensic accountants who are experienced in partner and shareholder litigation. They can:

  • Analyze financial statements, tax returns, and bank records to identify hidden income and excessive insider compensation;
  • Reconstruct the economic value of the business at key points in time; and
  • Quantify damages from diverted opportunities, self-dealing, and other fiduciary breaches.

We have worked with experts whose prior cases resulted in courts awarding tens of millions of dollars in compensatory and punitive damages to defrauded business owners after proving that they were induced into or kept in unfair deals by false financial information. That experience informs how we structure our own freeze-out and squeeze-out cases.

Remedies: More Than Just a Buyout

In some situations, the right remedy is a fair-value buyout of the minority owner’s interest, supervised by the court and informed by independent valuation. In others, injunctive relief to stop ongoing diversion of assets or to restore a client to management is critical. Where fraud or willful misconduct is involved, we also seek punitive damages to deter similar conduct in the future.

Because freeze-out tactics can overlap with libel—such as when majority owners make false accusations about a partner to justify their removal—we are prepared to add defamation claims when warranted. Our experience protecting reputations in offline and online settings gives us additional tools when smear campaigns accompany financial misconduct.

What Sets Our Freeze-Out Practice Apart

Our work in squeeze-out and freeze-out cases stands out because we:

  • Combine corporate, commercial, and tort theories to put maximum pressure on wrongdoers;
  • Use forensic accounting early to understand where the money has gone and what the business is truly worth;
  • Are comfortable litigating cases that involve complex deal documents, multi-entity structures, and overlapping personal and business relationships; and
  • Understand that for many clients, these cases are about more than money—they are about vindication and the ability to move forward.

That mix of legal and financial sophistication is especially important in closely held businesses, where personal relationships and family dynamics often collide with corporate governance. Continue reading ›

|

The Dream of Owning a Business — and the Nightmare That Followed

Some of our business clients come to us after realizing that the dream business they purchased is nothing like what they were sold. One of our current matters involves a small investor who purchased a business after reviewing glossy marketing materials, tax returns, and financial statements provided by the seller and a business broker.

On paper, the business appeared to be thriving: strong revenue, steady growth, and attractive profit margins. The buyer agreed to pay a substantial price based on those numbers and on the seller’s written warranties in an asset purchase agreement that the financials were “accurate” when provided and at closing.

Shortly after the sale, the new owner began comparing the point-of-sale (POS) data to the historic financials. The numbers did not come close to matching. The prior owner had used numerous no-tax transactions or other sleights of hand o inflate apparent sales. A later reconciliation showed the alleged inflated sales figures.

Our lawsuit in that matter alleged common-law fraud, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2, and breach of contract. The theory is straightforward: the seller and broker supplied false financial statements and a misleading sales materials, failed to disclose critical POS discrepancies, and then warranted in the purchase agreement that the financials were accurate.

815 ILCS 505/2 declares it unlawful to use deception, misrepresentation, or the concealment of material facts in trade or commerce. By overstating revenues and hiding expenses, the seller engaged in precisely the sort of conduct the statute is designed to prevent. Those statutory claims complement our common-law fraud counts> In cases like this and other consumer fraud cases, we seek both rescission and damages, including punitive damages where the conduct is willful and part of a pattern. If the plaintiff is an individual we also seek aggravation inconvenience and stress damages.

The Role of Forensic Accounting and POS Analysis

In many business-fraud and corporate freeze out and breach of fiduciary duty matters, our ability to tell a compelling story depends on the numbers. We work closely with forensic accountants who examine POS data, bank records, tax returns, and internal spreadsheets. They quantify how much the revenues were inflated and how that inflation translated into an overpayment for the business or in case of corporate freeze otu cases excessive paymetns to the controlling managers through expense account or other types of over compensation..

Because we regularly collaborate with forensic accountants in fraud and breach-of-fiduciary-duty cases, we know how to translate technical accounting conclusions into plain language that judges and juries can understand.

Strategic Remedies: Damages, Rescission, or Both

Buyers who are defrauded into purchasing a business often have a choice: seek rescission and unwind the transaction, or affirm the deal and sue for the difference between what they paid and what the business was actually worth. In our cases, we often preserve both options, making clear in our pleadings that our client may elect rescission before trial.

We also pursue punitive damages based on the willful nature of the misconduct: the seller and broker did not simply make a mistake, they allegedly used fake sales entries and omitted sales tax on numerous transactions to pump up the numbers in a way that would be obvious to any experienced industry player. That type of conduct often justifies a substantial punitive award on top of actual damages and also sets the stage for stress and aggravation damages.

What Makes Our Firm Effective in Deal-Fraud Litigation

Our practice combines commercial litigation, consumer-fraud work, and a deep bench of relationships with forensic experts. In deal-fraud cases like this, we typically:

  • Obtain and analyze POS data, merchant statements, and bank records;
  • Compare tax returns and internal financials against source data;
  • Depose brokers, accountants, and sellers about what they knew and when; and
  • Use consumer-fraud statutes like 815 ILCS 505/2 to pursue fee-shifting.

Because we also handle business squeeze-out and freeze-out cases, we are familiar with disputes among partners and shareholders that often arise when one owner discovers that another brought them into a business based on false numbers. Continue reading ›

|

Why Forensic Accounting Matters in Complex Business Fraud

Civil RICO and serious breach-of-fiduciary-duty cases live and die by the numbers. It is not enough to allege that a business partner or investment promoter “took money”; you have to show how funds moved, which entities were involved, and how those transactions fit into a pattern of racketeering activity such as wire fraud or mail fraud under 18 U.S.C. §1962.

In several of our current matters, we represent investors and entrepreneurs in disputes involving digital assets, closely held companies, and high-risk ventures where the financial records are a maze of limited-liability companies, internal transfers, and shifting balance sheets. In those cases, we partner with seasoned forensic accountants to reconstruct what really happened.

Examples from Our Current and Recent Matters

In one ongoing dispute involving a internet marketing venture, a member was told that affiliated companies were profitable and well-capitalized. A forensic review of balance sheets and income statements, however, showed that one entity reported net income in one year but then sustained significant losses the next and was insolvent within months, with liabilities exceeding assets by millions of dollars. Those findings undercut the fraud narrative.

We have also worked with forensic experts whose prior engagements include uncovering a nationwide investment schemes and hundreds of millions in fiduciary fraud or execessive fess and compensation all masked as loans of legitimate fees and services.  That level of real-world experience matters when your case involves serious allegations and high stakes.

How We Integrate Forensic Accounting into Civil RICO Theories

Civil RICO claims require proof of an enterprise, a pattern of racketeering activity, and injury to business or property. Forensic accountants help us tie those elements together by:

  • Mapping flows of funds between entities and individuals;
  • Identifying sham invoices, circular transfers, and unexplained withdrawals;
  • Testing whether financial statements fairly reflect underlying transactions; and
  • Quantifying investor losses and unjust enrichment.

When those analyses show, for example, that new investor money was consistently used to pay earlier investors, or that insiders siphoned funds through related-party contracts, we can frame those facts as predicate acts of wire or mail fraud. That can support a civil RICO claim alongside more traditional causes of action like common-law fraud, breach of fiduciary duty, and unjust enrichment.

Translating Complex Numbers for Judges and Juries

A good forensic report is only half the battle. The other half is turning spreadsheets and accounting jargon into a compelling trial story. Our lawyers are used to working hand-in-hand with forensic experts to prepare clear exhibits—timelines of transfers, simplified charts of related entities, and before-and-after net-worth analyses—that judges and jurors can understand at a glance.

Because we handle both business-tort cases and libel matters arising out of fraud accusations, we are sensitive to the reputational consequences of alleging racketeering. We carefully vet the evidence before including a civil RICO count, ensuring that our pleadings are supported by detailed, defensible forensic work rather than speculation.

What Makes Our Team Unique

Our firm’s approach to complex financial cases is different in several ways:

  • We involve forensic accountants early, often before suit is filed, so that we can shape the complaint around hard data rather than guesswork;
  • We are comfortable litigating in both state and federal courts, and we understand the procedural nuances of civil RICO and related claims;
  • We treat forensic experts as true partners in strategy, not just witnesses to be dropped in at the end of a case; and
  • We never lose sight of the human stakes—clients whose businesses, investments, and reputations are on the line.

Whether your dispute involves a digital-asset startup, a distressed operating company, or a complex web of related entities, this blend of legal and forensic expertise can be decisive.

 

Continue reading ›

|

Summary: Law firms and professional companies are businesses too. When lawyer‑owners divert funds, freeze out a co‑owner, or weaponize firm control, a derivative suit or oppression claim can be the right tool—if you respect both corporate law and the professional‑ethics overlay.

Typical patterns we see:

  • Unilateral transfers disguised as “distributions” or “draws.” Bank statements and ACH histories are the first stop; courts expect contemporaneous paper (or pixels) to back up allegations.

  • Access choke‑points. Changing login credentials to trust accounts, practice‑management billing, or accounting software is a hallmark of a freeze‑out. Immediate injunctions can restore access and stop dissipation.

  • Mixing direct and derivative claims. A lawyer‑member’s “personal” grievance is often the company’s harm in disguise. Keep the derivative and individual lanes clean to survive motions to dismiss.

  • What to plead and prove:

  • Derivative standing (and demand/futility). Say who controls the firm, why a demand would be futile, and what records you sought before filing.

  • Statutory backbone. For LLC law practices, cite 805 ILCS 180/40‑1 (derivative actions) and the LLC Act’s fiduciary duties and information rights (15‑1, 15‑3, 15‑5). For PC/corporate forms, remember the oppression statute (12.56) and corporate records rights.

  • Remedies that actually help. Courts can impose constructive trusts on misdirected funds, order real‑time access to trust‑accounting and billing systems, and enjoin further unilateral withdrawals while the case proceeds.

Continue reading ›

|

Under the Illinois Uniform Partnership Act (IUPA), all partners are liable for any wrongful act or omission by any partner (In re Keck, Mahin & Cate, 274 B.R. 740 (2002)), (Bane v. Ferguson, 707 F.Supp. 988 (1989)). This includes acts that occur in the ordinary course of the partnership’s business or are authorized by the partners (Bane v. Ferguson, 707 F.Supp. 988 (1989)), (In re Ascher, 141 B.R. 652 (1992))[3]. The liability is not limited even for “innocent” partners.

As for the protection against cheating, partners are fiduciaries for one another under Illinois law (Bane v. Ferguson, 707 F.Supp. 988 (1989)). This means they have a duty to exercise the utmost good faith and honesty in all partnership dealings (Johnson v. Woldman, 158 B.R. 992 (1993)). Particularly, the Uniform Partnership Act in Illinois imposes a trust duty (Johnson v. Woldman, 158 B.R. 992 (1993)), (Federal Deposit Ins. Corp. v. Braemoor Associates, 686 F.2d 550 (1982)). It mandates that every partner must account to the partnership for any benefit and hold as a trustee for it any profits derived by him/her without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership, or from any use by him/her of its property.

However, this fiduciary duty is only recognized when a partner derives profits without the consent of the other partners (Johnson v. Woldman, 158 B.R. 992 (1993)). Also, the liability of any partner does not extend to former partners. Additionally, partners cannot sue their fellow partners for acts that occur in the ordinary course of business or are authorized by the co-partners until there has been a final settlement of partnership accounts (In re Ascher, 141 B.R. 652 (1992)).

If a partner believes that he/she has been cheated, the appropriate remedy to seek under the Illinois Partnership Act could be an accounting, especially if the issue between partners requires an accounting.

In federal cases, the principle is generally the same. For instance, in the case of In re Keck, Mahin & Cate, it was established that under Illinois law and the Agreement, partners are liable for claims arising before or during the time they were partners (In re Keck, Mahin & Cate, 274 B.R. 740 (2002)). Continue reading ›

|

The elements required to establish a joint venture are broadly consistent across the search results. They include:

1. An express or implied agreement to carry on an enterprise (805 ILCS 206/202), (Ambuul v. Swanson, 162 Ill.App.3d 1065 (1987)), (Yokel v. Hite, 348 Ill.App.3d 703 (2004)).

2. A manifestation of intent by the parties to be associated as joint venturers (805 ILCS 206/202), (Ambuul v. Swanson, 162 Ill.App.3d 1065 (1987), (O’Brien v. Cacciatore, 227 Ill.App.3d 836 (1992)).

3. A joint interest as shown by the contribution of property, financial resources, effort, skill, or knowledge by each joint venturer (805 ILCS 206/202), (Ambuul v. Swanson, 162 Ill.App.3d 1065 (1987)), (Yokel v. Hite, 348 Ill.App.3d 703 (2004)).

4. Some degree of joint proprietorship or mutual right to exercise control over the enterprise (805 ILCS 206/202), (Ambuul v. Swanson, 162 Ill.App.3d 1065 (1987)).

5. Provision for the joint sharing of profits and losses (805 ILCS 206/202), (Ambuul v. Swanson, 162 Ill.App.3d 1065 (1987)), (O’Brien v. Cacciatore, 227 Ill.App.3d 836 (1992)).

It is important to note that all four criteria must be established or a joint venture does not exist (Fogt v. 1-800-Pack-Rat, LLC, 2017 IL App (1st) 150383 (2017)).

The obligation of a joint venturer to account to another member of the joint venture arises from the fiduciary nature of their relationship. The relationship between joint venturers, like that existing between partners, is fiduciary in character and imposes upon the participants an obligation of loyalty and good faith in their dealings with each other with respect to the enterprise (Ambuul v. Swanson, 162 Ill.App.3d 1065 (1987)). In the case of a sale of joint venture property by one joint adventurer, the other is entitled to an accounting on principal and interest profit, if any, received by the seller on the purchase money mortgage received when the joint venture property was liquidated (Burtell v. First Charter Service Corp., 83 Ill.App.3d 525 (1980)).

However, it’s important to note that whether or not a joint venture exists is a question for the trier of fact as they are in the best position to judge the credibility of the witnesses (Ambuul v. Swanson, 162 Ill.App.3d 1065 (1987)), (Thompson v. Hiter, 356 Ill.App.3d 574 (2005)), (Andrews v. Marriott Intern., Inc., 2016 IL App (1st) 122731 (2016)). Continue reading ›

|

Under Illinois law, defenses for a partner accused of breaching fiduciary duties to the partnership and his other partners can be varied and nuanced (LID Associates v. Dolan, 324 Ill.App.3d 1047 (2001)), (Pielet v. Hiffman, 407 Ill.App.3d 788 (2011)). Here are some potential defenses:

1. Compliance with Partnership Agreement: A partner who has acted in accordance with an express authorization in the partnership agreement may not be deemed in breach of fiduciary duties (1515 North Wells, L.P. v. 1513 North Wells, L.L.C., 392 Ill.App.3d 863 (2009). However, no language in a partnership agreement, however clear and explicit, can reduce a partner’s fiduciary duty toward other partners (Pielet v. Hiffman, 407 Ill.App.3d 788 (2011)).

2. Good Faith and Fairness: A partner can defend on the grounds that he has acted in good faith and fairness in his dealings with other partners (Winston & Strawn v. Nosal, 279 Ill.App.3d 231 (1996)). Under Illinois law, a fiduciary relationship exists between partners and each is bound to exercise the utmost good faith in all dealings and transactions related to the partnership business (Pielet v. Hiffman, 407 Ill.App.3d 788 (2011)), 1515 North Wells, L.P. v. 1513 North Wells, L.L.C., 392 Ill.App.3d 863 (2009)).

3. Lack of Personal Advantage: If a partner can show that he has not advantaged himself at the expense of the firm, this could be a defense against an accusation of fiduciary duty breach.

4. Right to Manage Partnership Affairs: If a partner was managing the affairs of the partnership and did not conceal, misrepresent or seek to take advantage of his partner, he might be able to argue that he was not in breach of fiduciary duties (Mermelstein v. Menora, 372 Ill.App.3d 407 (2007)).

5. Discrepancies in Accounting or Interpretation of Rights and Duties: Discrepancies or errors in accounting, or misinterpretations of rights and duties under partnership agreements, can be invoked as a defense, especially if the partner did not seek personal advantage.

6. Duty of Good Faith: If it can be shown that the partner always exercised good faith in his dealings with other partners, he can defend against the accusations (Pielet v. Hiffman, 407 Ill.App.3d 788 (2011)), (Winston & Strawn v. Nosal, 279 Ill.App.3d 231 (1996)).

Remember that each case is unique and the success of these defenses can depend on the specifics of the partnership agreement and the facts of the case. These defenses are not exhaustive and other defenses may be available depending on the specifics of a case. Continue reading ›

|

To protect beneficiaries in Illinois estates from breaches of fiduciary duty by the administrator, several measures can be taken based on the duties and responsibilities outlined in the relevant laws and cases.

Firstly, it’s important to establish that the relationship between an executor or administrator and a beneficiary is that of a trustee and cestui que trust, and is fiduciary in nature (In re Estate of Lis, 365 Ill.App.3d 1 (2006). This fiduciary duty requires the administrator to act with the highest degree of fidelity and utmost good faith in handling estate assets (Matter of Estate of Pirie, 141 Ill.App.3d 750 (1986), (In re Estate of Neisewander, 130 Ill.App.3d 1031 (1985, (Will v. Northwestern University, 378 Ill.App.3d 280 (2007). However, this fiduciary relationship does not extend to all affairs and transactions between administrators and beneficiaries (In re Estate of Lis, 365 Ill.App.3d 1 (2006)), (Will v. Northwestern University, 378 Ill.App.3d 280 (2007), (Epstein v. Davis, 2017 IL App (1st) 170605 (2017).

One of the main duties of an administrator is to collect the estate, convert it into cash, and distribute it to those entitled thereto (In re Estate of Wallen, 262 Ill.App.3d 61 (1994), (In re Estate of Zagaria, 2013 IL App (1st) 122879 (2013), (In re Estate of Cappetta, 315 Ill.App.3d 414 (2000). In this process, the administrator is expected to perform their responsibilities with the degree of skill and diligence which an ordinary prudent man bestows on his own similar private affairs (Matter of Estate of Pirie, 141 Ill.App.3d 750 (1986), (Will v. Northwestern University, 378 Ill.App.3d 280 (2007).

An administrator is also obligated to act in the best interests of the estate, which includes carrying out the wishes of the decedent and acting in the best interest of the estate (Estate of Hudson By Caruso v. Tibble, 2018 IL App (1st) 162469 (2018). This means that the administrator should act in good faith to protect the interests of beneficiaries (Will v. Northwestern University, 378 Ill.App.3d 280 (2007), (Szymakowski v. Szymakowski, 185 Ill.App.3d 746 (1989). Continue reading ›

|

In Illinois, the protections for minority shareholders or LLC members from breaches of fiduciary duty in closely held companies can be found in a combination of statutory provisions and case law.

Firstly, the Illinois Limited Liability Company Act (805 ILCS 180/15-3) specifies that a member of a manager-managed LLC does not owe a fiduciary duty to the LLC unless they are a manager under the terms of the operating agreement (Katris v. Carroll, 362 Ill.App.3d 1140 (2005)), (Tully v. McLean, 409 Ill.App.3d 659 (2011)). This means that members of an LLC who are not managers do not owe a fiduciary duty to the company or to other members (Katris v. Carroll, 362 Ill.App.3d 1140 (2005), (800 South Wells Commercial LLC v. Cadden, 2018 IL App (1st) 162882 (2018). However, members in a member-managed LLC do owe each other fiduciary duties of loyalty and care (Anest v. Audino, 332 Ill.App.3d 468 (2002), (Schultz v. Sinav Limited, — N.E.3d —- (2024).

Secondly, under the Illinois Business Corporations Act (805 ILCS 5/12.50), a minority shareholder may sue a corporation directly for its dissolution if they can establish that the majority shareholders have acted in a way that is illegal, oppressive, or fraudulent. This provides a means for minority shareholders to recover their investment from the corporation when no other methods are available (Kalabogias v. Georgou, 254 Ill.App.3d 740 (1993).

Moreover, under common law, a controlling shareholder in a cash-out merger owes the minority shareholders the default fiduciary duties of loyalty and due care, and courts apply an exacting standard of judicial review known as “entire fairness” (Schultz v. Sinav Limited, — N.E.3d —- (2024). Additionally, LLCs can contractually impose fiduciary duties on their managers. Furthermore, the Illinois courts have held that minority shareholders in closely held corporations may sue company directors for breaches of fiduciary duty (Elleby v. Forest Alarm Service, Inc., 2020 IL App (1st) 191597 (2020)). Continue reading ›

|

Choosing the right law firm to protect your minority interests in a closely held company is crucial, particularly when it comes to addressing breaches of fiduciary duty. DiTommaso Lubin is a firm that you might consider for several reasons:

  1. Concentration in Business Litigation: Firms like DiTommaso Lubin that concentrate in business litigation are likely to have a deep understanding of the complexities involved in disputes within closely held companies. This specialization can be beneficial in effectively navigating the legal landscape to protect minority shareholders.
  2. Experience with Fiduciary Duties: The protection of minority interests often hinges on issues related to fiduciary duties. A firm experienced in this area will understand the nuances of fiduciary responsibilities and how breaches can occur, which is critical in formulating a robust legal strategy.
Continue reading ›
Contact Information
Chicago Office
19 S LaSalle St #702
Chicago, IL 60603
Phone: 630-333-0333
Mailing Address
17W220 22nd St #410
Oakbrook Terrace, IL 60181
Phone: 630-333-0333 Please direct all mail correspondence to our Oakbrook Terrace address office.
Highland Park Office
189 Whistler Rd
Highland Park, IL 60035
Phone: 630-710-4990
We accept the following credit cards
Credit Cards Accepted
We accept payment via Venmo at: @L-A-LAW
Phone: 603-333-0333
Visit our site: chicagobusinesslawfirm.com

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Please do not include any confidential or sensitive information in a contact form, text message, or voicemail. The contact form sends information by non-encrypted email, which is not secure. Submitting a contact form, sending a text message, making a phone call, or leaving a voicemail does not create an attorney-client relationship.

Copyright © 2025, DiTommaso Lubin, PC
JUSTIA Law Firm Blog Design