Articles Posted in Breach of Fiduciary Duty

|

Donald J. Trump is already facing dozens of criminal charges for allegedly falsifying business records and misusing campaign funds in an alleged attempt to influence the 2016 presidential election. Yet Trump is back in court suing his former attorney, Michael Cohen, for $500 million.

The lawsuit accuses Cohen of talking publicly about things that should have remained confidential between him and his former client. The lawsuit also accuses Cohen of telling lies about Mr. Trump in the media and in Cohen’s two books, Disloyal: A Memoir: The True Story of the Former Personal Attorney to President Donald J. Trump, and Revenge: How Donald Trump Weaponized the U.S. Department of Justice Against His Critics.

The first book was published prior to the 2020 presidential election, whereas the second was released in 2022. Among other things, the books accuse Trump of being a racist and of lying about just about everything. Continue reading ›

|

We all know attorneys are not allowed to represent both sides in a lawsuit, but what if the law firm currently representing one side used to represent the other side? Wouldn’t that be considered a conflict of interest? It’s especially likely to pose a problem if the issue involved in the lawsuit is the same issue the law firm previously handled for the other side.

If the law firm had recently represented the company they’re currently suing, it’s obvious how that could cause problems. But what if the prior legal work in question was performed more than a decade ago? Would that be long enough to erase the conflict of interest?

All that is in question as Walgreens seeks to disqualify a law firm currently filing a lawsuit against it on behalf of major health insurance providers.

Walgreens claims the law firm, Crowell & Moring, has breached its fiduciary duty to the giant retail company by representing major health insurers suing Walgreens over drug prices. The law firm sought to have the claims dismissed, but U.S. District Judge Virginia Kendall said Walgreens had provided enough evidence to keep their claim alive, at least for now. Continue reading ›

|

In the case of Pickering v. Owens-Corning Fiberglas Corp., 265 Ill. App. 3d 806, the plaintiff sought punitive damages against the defendant for the defendant’s failure to warn consumers of the dangers associated with asbestos exposure. Punitive damages are damages awarded in addition to compensatory damages and are intended to punish the defendant for their wrongful conduct and to deter similar conduct in the future.

In this case, the plaintiff sought to discover the net worth of the defendant as part of their efforts to establish punitive damages. The defendant objected to the request for net worth discovery, arguing that it was irrelevant to the issue of punitive damages and that it was overly burdensome and intrusive.

The court held that net worth discovery was relevant to the issue of punitive damages and that the defendant had a duty to disclose its net worth. The court noted that punitive damages are intended to punish the defendant and that the amount of punitive damages awarded should be proportionate to the defendant’s ability to pay. The court also noted that net worth discovery is a common practice in cases involving punitive damages. Continue reading ›

|

“The focus of the crime fraud exception is on the intent of the client (citation omitted), not the legitimacy of the services provided by the attorney. An attorney may be completely innocent of wrongdoing, yet the privilege will give way if the client sought the attorney’s assistance for illegal ends.” People v. Radojcic, 2013 IL 114197, ¶ 49.

A lawyer’s participation in intentional breaches of fiduciary duty triggers the crime-fraud exception even though a fiduciary breach is no necessarily a crime or act of common law fraud. Intentional fiduciary breaches are regularly called constructive fraud however and give rise to the crime fraud exception. See Mueller Indus., Inc. v. Berkman, 399 Ill.App.3d 456, 469-73 (2d Dist. 2010) abrogated by People v. Radojcic, 2013 IL 114197 on other grounds (“In concluding that an intentional breach of fiduciary duty may serve as the fraud necessary to establish the crime-fraud exception, we take note of Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476 (Ky.1991). … The Kentucky Supreme Court held that the breach of fiduciary duty was ‘on an equal par with fraud and deceit.”’) Lawyers who aid and abet fiduciary breaches and other torts are subject to suit. As Thornwood, Inc. v. Jenner & Block, 344 Ill. App. 3d 15, 28–29 (1st Dist. 2003), as modified on denial of reh’g (Nov. 10, 2003) recognized, a lawyer may not “escap[e] liability for knowingly and substantially assisting a client in the commission of a tort.” Continue reading ›

|
Labovitz v. Dolan, 189 Ill. App. 3d 403 (1st Dist. 1989) is a case that was heard by the Appellate Court of Illinois, First District, Second Division. The case involved a dispute between Joel Labovitz and a group of investors, who were referred to as the “Labovitz Group,” and Charles F. Dolan and a group of investors, who were referred to as the “Dolan Group.”
The dispute centered around a real estate development project in Chicago. The Labovitz Group had entered into a joint venture agreement with the Dolan Group to develop a commercial real estate property in Chicago. The agreement specified that the parties would share equally in the profits and losses of the project. However, after the project was completed, the Dolan Group refused to distribute any profits to the Labovitz Group, claiming that there were no profits to distribute.

The Labovitz Group then filed a lawsuit against the Dolan Group, alleging breach of contract and fraud. The trial court ruled in favor of the Dolan Group, finding that there were no profits to distribute and that the Labovitz Group had failed to prove their fraud claims.

The Labovitz Group appealed the trial court’s decision to the Appellate Court of Illinois. The appellate court overturned the trial court’s decision, finding that the Dolan Group had breached the joint venture agreement and that the Labovitz Group was entitled to an equal share of the profits. The appellate court also found that the Dolan Group had committed fraud by misrepresenting the financial condition of the project.

One of the key issues in this case was the interpretation of the joint venture agreement. The appellate court found that the agreement was clear and unambiguous in its terms and that the Dolan Group had breached the agreement by failing to distribute profits to the Labovitz Group.

Another important issue in this case was the question of fraud. The appellate court found that the Dolan Group had made misrepresentations about the financial condition of the project, which constituted fraud under Illinois law.

Labovitz highlights the importance of clear and unambiguous contracts in business transactions. It also underscores the importance of honesty and integrity in business dealings and the legal remedies that are available to parties who have been wronged.  The case also highlights that controlling partners or owners owe very high fiduciary duties to other limited partners. shareholders or LLC members. The decision relies upon what has become the most celebrated pronouncement characterizing the fiduciary relationship that exists among partners, Chief Judge Benjamin N. Cardozo stated for the court in the case of Meinhard v. Salmon (1928), 249 N.Y. 458, 463–64 that:

“… copartners, owe to one another … the duty of the finest loyalty. Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘disintegrating erosion’ of particular exceptions. [Citation] Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.”
The case found that Dolan’s discretion to withhold cash was not absolute; it was limited by an implied covenant of good faith and fair dealing implicit in every Illinois contract and by his fiduciary duty to his partners. “Good faith between contracting parties requires that a party vested with contractual discretion must exercise his discretion reasonably and may not do so arbitrarily or capriciously.” The Court held:
It is also clear, however, that despite having such broad discretion, Dolan still owed his limited partners a fiduciary duty, which necessarily encompasses the duty of exercising good faith, honesty, and fairness in his dealings with them and the funds of the partnership. (See: Couri, 95 Ill.2d 91, 69 Ill.Dec. 117, 447 N.E.2d 334; Mandell, 86 Ill.App.3d 437, 41 Ill.Dec. 323, 407 N.E.2d 821; Dayan, 125 Ill.App.3d 972, 81 Ill.Dec. 156, 466 N.E.2d 958; Foster Enterprises, 97 Ill.App.3d 22, 52 Ill.Dec. 303, 421 N.E.2d 1375.) It is no answer to the claim that plaintiffs make in this case that partners have the right to establish among themselves their rights, duties and obligations, as though the exercise of that right releases, waives or delimits somehow, the high fiduciary duty owed to them by the general partner—a gloss we do not find anywhere in our law. On the contrary, the fiduciary duty exists concurrently with the obligations set forth in the partnership agreement whether or not expressed therein. Indeed, at least one of the authorities relied upon by defendants is clear that although “partners are free to vary many aspects of their relationship inter se, … they are not free to destroy its fiduciary character.” Saballus, 122 Ill.App.3d at 116, 77 Ill.Dec. 451, 460 N.E.2d 755.
Thus, the language in the Articles standing alone does not deprive plaintiffs of the trial they seek against Dolan for breach of fiduciary *413 duty.

Continue reading ›

|

When Stephen Easterbrook was first fired from his position as CEO of McDonald’s, the firing was listed as “without cause,” which allowed Easterbrook to keep his severance pay, including shares in the company. But that was before McDonald’s found out about the extent of Easterbrook’s alleged misconduct.

At the time he was fired, Easterbrook allegedly denied having any inappropriate relationships with any of his employees, except for one relationship, which he claimed had not been physical. Afterwards, an internal investigation found emails that allegedly revealed Easterbrook’s sexual relationships with multiple McDonald’s employees during his time as CEO. Once these emails were uncovered, the company sued Easterbrook in 2020.

The lawsuit resulted in Easterbrook returning his shares in the company, as well as cash, the combined value of which was about $105 million at the time he returned it. Continue reading ›

|

In a recent decision, the Seventh Circuit federal court of appeals affirmed the dismissal of an action for breach of fiduciary duty brought against two investment firms by a disgruntled customer. In ruling that the District Court properly dismissed the claims, the Court found that the fiduciary duties the investment firms owed to the plaintiff did not include a duty to stop the plaintiff’s daughter who acted under a power of attorney from making certain withdrawals from the plaintiff’s accounts.

The plaintiff, Joseph Allen, amassed a net worth of nearly $8 million dollars. He enlisted the services of the defendants, Brown Advisory, LLC and Brown Investment Advisory & Trust Company, to help him invest and manage his wealth. When Allen and his wife experienced declining health and he could no longer manage their finances, Allen granted a financial power of attorney to his daughter Elizabeth Key. For several years Key used the power of attorney to make withdrawals from Allen’s investment accounts. Those withdrawals had depleted the value of Allen’s IRA accounts from approximately $2.3 million to less than $600,000.

Five years later, Allen revoked the power of attorney and sued the two investment companies in Indiana state court accusing the defendants of breach of fiduciary duty and breach of contract. He alleged that Key’s withdrawals (or some of them) were not to his benefit and that the investment companies should not have honored them. The defendants moved to dismiss Allen’s complaint.

The District Court judge granted the defendants’ motion, reasoning that the investment firms could not be liable for breach of contract because the challenged withdrawals were directed by Key and authorized by her power of attorney. The trial court also dismissed Allen’s breach of fiduciary duty claim after holding that Maryland law does not recognize a separate cause of action for breach of fiduciary duty arising from a contractual relationship. Allen appealed the dismissal. Continue reading ›

|

The death of a loved one or a business partner can be difficult. The administration of a large estate can add to that difficulty. Often the duty of settling the estate and distributing the assets falls to a fiduciary such as an attorney, a trustee, a personal representative, an administrator or an executor. That fiduciary holds a position of trust and is responsible for holding and managing property that belongs to the beneficiaries.

With this position of trust comes certain legal obligations that are owed to the estate’s beneficiaries such as the duties of care and loyalty.

In the context of being an executor or administrator, a fiduciary duty is a legal obligation to act in the best interest of the beneficiaries of the estate. Illinois law imposes various responsibilities and duties on these individuals, including:

  • Acting in the grantor’s and beneficiary’s best interests
  • Acting loyally and uphold a duty of care
  • Avoiding conflicts of interest
  • Abstaining from engaging in self-dealing (i.e. taking actions that personally benefit the trustee or executor at the expense of or contrary to the best interest of the beneficiaries)
  • Avoiding favoring one beneficiary over another
  • Investing the estate’s assets to maintain or increase their value
  • Distributing estate assets to the intended beneficiaries correctly and in a timely manner

Continue reading ›

|

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 ›

|

A Delaware Chancery Court judge recently rendered a post-trial verdict in the In re Tesla Motors Stockholder Litigation in which he found in favor of co-founder and CEO of Tesla Motors, Elon Musk, on claims that Musk breached his fiduciary duties, was unjustly enriched, and created corporate waste in connection with Tesla’s 2016 acquisition of the SolarCity Corporation.

This high-profile, high-stakes lawsuit stemmed from alleged conflicts of interest created by Musk’s leadership and ownership of both companies during the 2016 acquisition. At the time of the merger, Musk was SolarCity’s largest stockholder and chaired its board of directors. At the same time, he owned 22% of Tesla stock and served as CEO and a director of Tesla. When the potential acquisition of SolarCity came up, Tesla’s board elected not to form a special committee of independent directors to negotiate the transaction. It did, however, condition approval of the acquisition on the “affirmative vote of a majority of the minority of Tesla’s disinterested stockholders” and recused Musk from certain Board discussions regarding the acquisition.

Despite these protections, the plaintiff shareholders alleged that Musk, as Tesla’s controlling shareholder, exerted his influence over Tesla’s board to approve the acquisition at an unfair price, following a highly flawed process, in order to bail out his (and other family members’) foundering investment in SolarCity. Plaintiffs named both Musk and members of Tesla’s board as defendants and sought damages as well as equitable remedies. Before trial, all defendants except Musk settled with plaintiffs, leaving only the claims against Musk proceeding to an 11-day trial over July and August 2021. 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.
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

Please direct all mail correspondence to our Oakbrook Terrace address.

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 © 2023, Lubin Austermuehle, P.C.
JUSTIA Law Firm Blog Design