The Illinois Supreme Court ruled recently that an energy company could not sustain a claim for stolen corporate opportunities against two of its former business developers. In doing so the Court overturned a ruling by the appellate court which had revived the stolen corporate opportunity claim. The ruling, which many consider to be a bombshell in stolen corporate opportunity jurisprudence, was not without its detractors with three justices dissenting from the majority’s decision.
The plaintiff, Indeck Energy Services, is a privately held Buffalo Grove company that develops, owns, and operates independent power plants. Indeck’s lawsuit targets two former Indeck employees, Christopher M. DePodesta and Karl G. Dahlstrom, whom the energy company alleged secretly operated their own company while employed by Indeck and in doing so secured certain opportunities for themselves in breach of their fiduciary duties to Indeck.
Indeck hired DePodesta in 2010 as its vice president of business development and Dahlstrom in 2011 as its director of business development. The two were brought in to help Indeck scout out and secure new opportunities to develop natural gas powered plants within a region of Texas known as the Electrical Reliability Council of Texas.
Dalhstrom founded Halyard Energy Ventures, LLC (HEV) in late 2010. DePodesta became a member of HEV in 2011. HEV is a consulting, management, and administration firm that develops electrical power generation projects. Following DePodesta and Dalhstrom’s departure from Indeck, the two allegedly negotiated a deal for HEV to partner with a private equity fund to develop, construct, and operate electrical power generation plants.
In its complaint, Indeck alleged that, while still working for Indeck, Dalhstrom and DePodesta allegedly took steps to keep certain business opportunities and partnerships from Indeck and steer them to HEV. The company alleged that Dalhstrom and DePodesta secretly set up meetings with potential business partners and suppliers of gas turbines needed for natural gas powered electricity generation plants but kept Indeck in the dark about these meetings.
Additionally, Indeck alleged that the two accessed certain proprietary information that Indeck had prepared concerning capital requirements for starting a new natural gas power plant in the Electrical Reliability Council of Texas. Dahlstrom admitted that he used an Indeck business plan to put together the “Halyard Energy Power Development Strategy” for HEV. Dahlstrom also admitted he used Indeck’s time, equipment, materials, and facilities to put his plan together.
For several weeks and months, DePodesta and Dahlstrom allegedly used their Indeck business days and its equipment to negotiate the terms of a letter of intent between a private equity fund and HEV and to create various HEV documents. Both allegedly used measures to wipe these documents and information from their computers to prevent discovery of what they were doing. A few weeks before the two resigned from Indeck, Dahlstrom allegedly copied and removed from Indeck’s premises thousands of documents and files, including business development documents related to the Wharton project. DePodesta also copied thousands of documents and files from Indeck’s computers.
Within months of their leaving, Indeck filed suit against DePodesta and Dalhstrom alleging breaches of their fiduciary duties owed to Indeck and breaches of their confidentiality agreements with Indeck which precluded them from using Indeck proprietary information and documents for their own benefits. Following a trial, the trial court dismissed the claims concerning breach of the confidentiality agreement finding it was overly broad and thus not enforceable and that Indeck had failed to prove that it had been injured by any violations of the agreement. The trial court also found that Indeck had failed to prove that DePodesta and Dahlstrom stole any corporate opportunities from Indeck and cited one specific opportunity identified by Indeck—the opportunity to buy two gas powered turbine generators—could not have been stolen as the generators were still available for purchase at the time of trial.
The trial court sided with Indeck on its breach of fiduciary duty claims finding that both DePodesta and Dahlstrom owed a fiduciary duty of loyalty to Indeck which they breached by taking steps to set up a competing company and taking certain negotiating positions on behalf of Indeck that harmed Indeck’s chances of creating strategic business partnerships. Indeck appealed the trial court’s dismissal of its stolen corporate opportunity claim and the appellate court affirmed the trial court with the exception of the dismissal of Indeck’s usurpation of corporate opportunities claim which it revived.
The Illinois Supreme Court agreed to hear the case and ultimately reinstated the trial court’s ruling that Indeck had failed to prove that DePodesta or Dalhstrom had stolen any corporate opportunities. The Court found that no corporate opportunities had been stolen because Indeck failed to prove that the opportunities were not still available. The Court cited to the fact that the operating agreement HEV entered with a key development partner in the power plant project allowed that company “to partner with any entity,” which could include Indeck. Further, the Court found that the alleged actions by DePodesta and Dahlstrom did not “foreclose” on Indeck’s opportunities to develop power generating turbines within the Electrical Reliability Council of Texas. Finding that DePodesta and Dahlstrom had usurped corporate opportunities in this situation “would allow a plaintiff corporation to recover damages in a suit for usurpation of a corporate opportunity even if the corporation were able to use the opportunity itself, and even if there were no wrongful gains that could be recovered from the fiduciary,” the Court wrote.
The three dissenting justices characterized the majority’s conclusion on the claim for corporate usurpation as contrary to the core principle of the doctrine. According to the dissent, the fact that, while in plaintiff’s employ, DePodesta and Dahlstrom used corporate assets to develop business opportunities for themselves established actionable conduct regardless of whether opportunities remained available to Indeck. The dissent cautioned that the majority’s reading of the law creates a loophole for dishonest fiduciaries to avoid liability. According to the dissent, one can steal corporate opportunities with impunity simply by including contractual language that the opportunity in question is not exclusively available to any party.
The Court’s full opinion is available online here.
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