Fiduciary Shield Doctrine Does Not Apply When Fiduciary Is Motivated By Personal Interests, First District Says


A trial court may have personal jurisdiction over a defendant outside Illinois, but only if it can determine that the defendant’s alleged tort was motivated for personal reasons, the First District Court of Appeal has ruled. Femal v. Square D Company, No. 1-07-1990 (Ill. 1st Jan. 29, 2009). The ruling came in a complex Illinois business dispute between Michael Femal, a former employee at electrical equipment manufacturer Schneider Electric, and James O’Shaughnessy, a lawyer for a company accused of violating a Schneider patent.

Femal patented a process for his employer, Square D, which was bought by Schneider Automation, Inc. Schneider sold the patent to Solaia Technologies, which was to enforce the patent and give Schneider a percentage of its earnings. Schneider agreed to let Femal help Solaia enforce the patent, for which he was to get 2% of Solaia’s earnings.

Among the alleged infringers Solaia sued was Wisconsin-based Rockwell International, which countersued Solaia for bad faith patent enforcement. The sides had a settlement conference in Illinois that included O’Shaughnessy, Rockwell’s attorney. At this meeting, Rockwell raised allegations that Femal could best refute, leading Solaia to cancel its percentage arrangement with Femal and put him on a much less lucrative hourly wage to serve as a witness. Schneider then hired outside counsel to look into the propriety of Femal’s percentage arrangement with Solaia, and eventually fired him for misuse of compay assets, gross misrepresentations and gross failure of professional judgment.

Femal sued O’Shaughnessy, among others, alleging that O’Shaughnessy told Square D’s lawyer that Femal’s percentage arrangement was a gross violation of professional ethics. He also claims that O’Shaughnessy made inappropriate factual allegations to get the percentage arrangement canceled. The alleged intent, Femal said, was to save Rockwell money by harming the business relationships between Femal and the companies. Perhaps more importantly, he alleged that O’Shaughnessy was also personally motivated to cover up for bad judgment in telling Rockwell not to pay for the patent, thus incurring many times the patent’s price in legal fees.

O’Shaughnessy, who lives and works in Wisconsin, moved to dismiss because Illinois lacks personal jurisdiction over him. He was acting solely in his capacity as an employee during the Illinois meeting, he said, an assertion that Femal disputes. The trial court dismissed the motion without a hearing, a ruling that O’Shaughnessy appealed to the First District Court of Appeal and then to the Illinois Supreme Court, which ordered the appeals court to resolve it in the instant action.

In its analysis, the First District quoted at length from Rollins v. Ellwood, 141 Ill. 2d 244 (1990), which found that employees are covered by the fiduciary shield doctrine when their employers order them into another state. It was unfair for Illinois to assert personal jurisdiction in that case, the Illinois Supreme Court said, because the defendant could have been fired for refusing to enter the state. In later cases, however, courts found exceptions to that doctrine when the actions at issue were discretionary. It also noted that it saw no reason why alleged personal interest must be pecuniary in nature.

Applying that test to the case at hand, the First District noted that Femal and O’Shaughnessy have submitted affidavits that contradict one another — Femal claiming O’Shaughnessy had a personal interest in defaming him and O’Shaughnessy claiming he did not. This is an issue of fact that will decide whether Illinois courts have personal jurisdiction over O’Shaughnessy, the court wrote. Thus, the First District reversed the trial court’s decision and remanded it with instructions to hold an evidentiary hearing on the personal motivation issue and make written findings of fact.

Lubin Austermuehle’s Chicago business litigation lawyers handle all kinds of business disputes in Illinois, including claims of defamation of a businessperson or a product. Based in Chicago and Oak Brook, Ill., we represent clients in the Chicago area including cities in DuPage and Lake Counties including Wheaton, Naperville and Waukegan and throughout the Midwest in federal and Illinois business dispute lawsuits. You can click here to look at a summary of some of the cases our Chicago business trial lawyers have handled. If you are in a similar situation and you would like to explore your options, please contact us online or call 630-333-0333 to set up a confidential consultation.

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