Chicago Business Litigation Lawyer Blog

Federal Appellate Court Explores Narrow Exception to Rule 54(b)’s Finality Rule in Trade Secrets Misappropriation Case

January 1, 2023 | Peter S. Lubin and James V. DiTommaso

In a complicated trade secret misappropriation case involving an evolving cast of characters, United States First Circuit Court of Appeals affirmed the dismissal of trade secret misappropriation claims between former drug development partners. However, the First Circuit found that the district court abused its discretion by denying the plaintiff’s motion to file an amended complaint and consequently vacated the dismissal of trade secret claims against one of the defendant’s U.S. affiliate. In doing so, the Court was forced to explore the often misunderstood “narrow exception” to Rule 54(b)’s finality rule.

The plaintiff, Amyndas, is a Greek biotechnology firm that researches and develops therapeutics targeting a part of the immune system known as the complement system. In 2015, Amyndas entered into a confidential disclosure agreement (CDA) with a Danish biotech firm, Zealand, to develop treatments targeting this complement system. The following year, the parties entered into a second CDA. products as those pursued during its collaboration with Zealand. As part of its collaboration with Amyndas, Alexion requested and received certain confidential information about Amyndas’s complementary therapeutic research, including details about Amyndas’s intellectual property, planned clinical trials, platform and collaboration network.

Illinois Appellate Court Revives Company’s Defamation suit against Competitor

December 25, 2022 | Peter S. Lubin and James V. DiTommaso

The First District Illinois Appellate Court recently overturned a Cook County Circuit Court’s dismissal of a company’s defamation suit against a competitor. In its ruling, the Court held that a Chicago shipping company can claim it was defamed by emails sent to its management disparaging the company. Having cleared the hurdle of establishing a viable claim, the plaintiff company will now need to establish that it suffered reputational damage.

The allegations in this defamation suit stem from a series of anonymous emails sent in May 2019 to various board members and at least one executive of the plaintiff, project44, Inc. The complaint alleges that these emails purported to warn the project44 board members and executive of accounting fraud at project44 and connections to Chicago organized crime. Project44 allegedly was able to trace the email messages to computers used by a competitor, FourKites. Following receipt of the emails and its investigation into their source, project44 filed a commercial defamation suit against FourKites and several unknown FourKites employees.

In response, FourKites sought dismissal of the suit arguing that project44 could not sustain a defamation claim because project44 could not establish that the allegedly defamatory statements were published to any third parties. FourKites argued that no publication occurred because the emails were essentially sent to project44 itself and not to a third party. The trial court agreed with FourKites and dismissed the suit. Continue reading ›

Spotting the Red Flags of Trusts and Estates Fraud

December 15, 2022 | Peter S. Lubin and James V. DiTommaso

Executors and trustees have a large amount of responsibility with respect to the assets they manage and to the beneficiaries for whose benefit they manage such assets. However, with a high degree of responsibility comes a high degree of accountability. That accountability comes in the form of the fiduciary duties that trustees and executors owe to the beneficiaries of an estate or trust. Chief among those fiduciary duties are the duties of loyalty, care, impartiality, and disclosure.

One way that executors and trustees can breach their fiduciary duties is by engaging in fraud. Executor or trustee fraud occurs when the executor or trustee uses deceit to misappropriate estate or trust assets for themselves or someone else not entitled to receive them. Claims of executor or trustee fraud can have serious consequences, including holding the executor or trustee personally liable for the losses suffered by the beneficiaries.

Examples of ways that an executor or trustee can commit fraud against the beneficiaries include:

Misappropriating assets of the estate or trust
Withholding distributions from beneficiaries
Distributing less than what a beneficiary is entitled
Hiding or omitting estate or trust assets
Failing to notify beneficiaries
Falsifying liabilities
Charging inflated fees
Selling assets for below market value to someone connected to the trustee or executor such as a friend or family member.

Buyout Rights of Oppressed Minority Shareholders or LLC Members

December 7, 2022 | Peter S. Lubin and James V. DiTommaso

When starting a business, co-owners envision the best—working together productively and profitably. But it is all too common for business partners to encounter a serious impasse over how to operate the business. When partners are unable to work through a dispute, it may be time for one partner to exit the company via a buyout of their interest. It is not uncommon for this scenario to arise in conjunction with claims that the majority shareholder or shareholders are oppressing the minority shareholder or shareholders.

For Illinois corporations, the Illinois Business Corporation Act of 1983 (BCA) permits shareholders to pursue legal action against each other based on allegations of fraud, illegal activity, corporate waste or other disruptive conduct. The BCA provides for 12 categories of relief that a court may order as an alternative to dissolving the business. Minority shareholders frequently opt to pursue the remedy of a buyout, in which the exiting shareholder’s interest is purchased by the remaining shareholders for “fair value.” Similarly for Illinois LLCs, the Illinois Limited Liability Company Act provides that a court may order the entity or the remaining members to purchase the interest of the outgoing member.

The BCA defines “fair value” as the value of the shares “taking into account any impact on the value of the shares resulting from the actions giving rise to a petition under this Section.” The statute goes on the explain that “‘fair value,’ with respect to a petitioning shareholder’s shares, means the proportionate interest of the shareholder in the corporation, without any discount for minority status or, absent extraordinary circumstances, lack of marketability.” For many companies, this provides a much more favorable valuation to a minority shareholder than selling shares for fair market value or any other metric of value normally employed when selling an interest in a small business. This is particularly true for closed (or closely held) corporations where a market for the minority’s shares might not otherwise exist since the statutory valuation does not generally speaking allow for a discount for the lack of marketability of the minority’s shares. Continue reading ›

Gerber Asks Chicago Federal Judge to Dismiss Class Action Lawsuit over Toddler Formula

November 30, 2022 | Peter S. Lubin and James V. DiTommaso

Facing a recently filed putative class action lawsuit over the labeling and marketing of its toddler formula, baby formula manufacturer Gerber has asked a federal judge in Chicago to dismiss the suit arguing that reasonable parents buying its toddler formula couldn’t possibly be misled by the claims on its Good Start Grow products. The motion comes on the heels of the dismissal of a second class action lawsuit involving Gerber’s formula by a Virginia federal judge earlier in the month.

In her complaint, plaintiff Melissa Garza alleges that Gerber makes a toddler formula that is marketed as nutritional, but which actually contains added sugars and less protein than cow’s milk. Garza alleges that Gerber’s Good Start GentlePro Infant Formula and Good Start Grow Toddler Drink are marketed nearly identically without disclosing that the toddler formula has added sugar, less protein and more carbohydrates than whole cow’s milk.

The complaint alleges that Gerber’s failure to adequately distinguish the two products and disclose that its toddler formula is inconsistent with expert advice constitute violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, the consumer fraud acts of other states and the federal Magnuson Moss Warranty Act and has unjustly enriched Gerber. Garza seeks to represent herself and a class of individuals in Illinois, Iowa, Arkansas, Wyoming, North Dakota, and Utah who purchased Gerber’s toddler formula.

The toddler formula, which the complaint refers to as a “transition formula” (a term Gerber takes issue with in its motion to dismiss), contains nearly the same ingredients as Gerber’s infant formula and is fortified with vitamins D and E as well as iron. However, Garza alleges that a global consensus of pediatric health organizations, including the American Academy of Pediatrics (AAP) Committee on Nutrition and the relevant Sub-Committee of the World Health Organization (WHO) have advised that transition formula is not recommended and that toddlers can meet all nutritional needs from whole cow’s milk, water and healthy foods. Continue reading ›

Court Rules that Client Can Sue Lawyers over Punitive Damages Award

November 20, 2022 | Peter S. Lubin and James V. DiTommaso

In a recent decision, the Illinois Supreme Court held that clients ordered to pay punitive damages can sue their attorneys to recover the money. In doing so the Court considered and rejected arguments that state law and public policy protect lawyers from being subject to punitive damages awards.

Midwest Sanitary Service Inc. retained St. Louis law firm Sandberg, Phoenix & Von Gontard to represent it in a whistleblower retaliation case filed against it by a former employee. Midwest lost the trial which resulted in a jury award of $160,000 in compensatory damages and, important to the case before the Court, $625,000 in punitive damages against the company. Following the verdict, Midwest sued its lawyers for malpractice alleging that the attorneys had committed various mistakes in the case including failing to designate defense witnesses in time and eliciting harmful testimony from a state official during cross-examination.

For their part, the attorneys sought dismissal of the legal malpractice suit arguing that Section 2-1115 of the Illinois Code of Civil Procedure prohibition against awarding punitive damages in medical or legal malpractice cases precluded Midwest from recovery of the punitive damages award. It also argued that allowing recovery in a legal malpractice suit of punitive damages awarded in an underlying suit would violate the public policy of Illinois. The trial court rejected the law firm’s arguments that it could not be held responsible for the punitive damages award. The Fifth District appellate court sided with the trial court. The Illinois Supreme Court granted the law firm’s petition for leave to appeal.

Initially, the Court noted that the malpractice case was still ongoing and that the appeal had not come from a final and appealable judgment but was an interlocutory appeal brought pursuant to Illinois Supreme Court Rule 308. As such, the Court’s task was to answer the question of whether, in a legal malpractice action, punitive damages incurred in an underlying action, which were proximately caused by the alleged negligence of the attorneys in the underlying action, can be recovered as compensatory damages from the allegedly negligent attorneys in a legal malpractice action. Continue reading ›

Illinois Appellate Court Finds Defamation Suit Barred as Statements Protected by Privilege

November 15, 2022 | Peter S. Lubin and James V. DiTommaso

An Illinois appeals court recently found a political candidate in Madison County could not be held liable for defamation for statements in a press release finding that the allegedly defamatory statements were privileged and thus immune from liability. Former Madison County IT director, Rob Dorman and former administrator Doug Hulme filed the lawsuit claiming that the press release statements were false and defamatory and ultimately cost them their jobs.

In April 2020, Robert Daiber, the Democrat candidate for county board chairman was identified as one of several local Democratic politicians calling for the dismissal of top officials in Madison county board chairman Kurt Prenzler’s administration. In the press release Daiber was quoted as saying “[a] criminal investigation by six law enforcement agencies has made it clear how extensive corruption and abuses of power are in the Prenzler administration. Madison County must act now to restore public trust by immediately dismissing the Prenzler aides who have committed these truly shocking actions.”

The press release also cited affidavits released from the investigation as providing “conclusive evidence that top aides . . . attempted a pay-for-play scheme by offering a county job to a congressional staff person in exchange for the appointment to a U.S. Attorney position of their political accomplice” and “a scheme to hack into and spy on e-mails of the Madison County judiciary and the offices of elected county officials (neither of which are under the jurisdiction of the County Chairman or County Board) for political purposes.”

Days after the publication of the press release Dorman and Hulme were fired from their positions with the county. Dorman filed suit against Daiber several months later and Hulme joined as a plaintiff shortly thereafter. In their complaint, the plaintiffs allege that the statements in the press release were false and defamatory and that they had been exonerated from any wrongdoing at the conclusion of the investigation and a subsequent probe by the Attorney General. Despite being exonerated, the plaintiffs alleged that the statements in the press release had caused them to lose their jobs. Continue reading ›

Changes to Delaware Corporate Law Concerning Officer Liability for Breach of Fiduciary Duties

November 9, 2022 | Peter S. Lubin and James V. DiTommaso

Earlier this year, the governor of Delaware signed Senate bill 273 which amended various provisions of the Delaware General Corporation Law (GCL). The changes became effective August 1, 2022. Most notable among the changes was the amendment of Section 102(b)(7) of the GCL to allow corporations to exclude or limit certain officers from personal liability for breaches of their fiduciary duty of care. In order for corporations to take advantage of this change in the law, companies must include a provision in their certificate of incorporation eliminating or limiting its officers from personal liability for breaches of the duty of care.

Under Delaware corporate law, directors and officers of Delaware corporations owe the corporation and its shareholders certain fiduciary duties. One of the two chief fiduciary duties that directors and officers owe to the corporation and shareholders is called the duty of care. The duty of care requires directors and officers to exercise care and act in an informed manner when acting for the corporation and making decisions on its behalf.

Since 1986, with the addition of Section 102(b)(7) to the GCL, corporations have been authorized to eliminate or limit the personal liability of directors for monetary damages for breaches of the duty of care. However, until passage of the amended Section 102(b)(7) this year, corporations could not do the same for its officers, even though the Delaware Supreme Court repeatedly affirmed that officers owe the same fiduciary duties as directors. Now corporations can insulate its officers as well as directors from personal liability for breaches of the duty of care.

It is important to understand the limits of this newly amended Section 102(b)(7). First, it doesn’t apply to all officers but only to those officers “deemed to have consented to service by the delivery of process to the registered agent of the corporation pursuant to § 3114(b) of Title 10” which includes the president, chief executive officer, chief operating officer, chief financial officer, chief legal officer, controller, treasurer, or chief accounting officer along with anyone identified in the corporation’s SEC filing as one of the most highly compensated executive officers, or anyone who has, by agreement with the corporation, consented to be identified as an officer for the purposes of Section 3114(b) of the GCL. Continue reading ›

Seventh Circuit Finds in Favor of Newspaper in Defamation Suit over Article Detailing Trustee’s Breach of Fiduciary Duties

November 1, 2022 | Peter S. Lubin and James V. DiTommaso

The Seventh Circuit federal appeals court recently determined that a Wisconsin newspaper did not commit defamation when it published a 2018 story concerning a local financial adviser. In affirming the district court’s finding in favor of the newspaper, the Seventh Circuit found that the allegedly defamatory article was largely accurate and protected under what is known under Wisconsin law as the judicial-action privilege, which protect publishers who report on court activity.

In August 2018, the Wausa Daily Herald published an article by reporter Sam Wisneski titled Wisconsin financial advisor accused of violating a dead man’s trust, mishandling $3 million. In the article Wisneski chronicled the allegedly bad-faith handling of the $3 million trust of deceased Wisconsin man Joe Geisler by his financial advisor, Thomas Batterman.

The story recounted the life of Geisler who, upon his death at the age of 88, left his more than $3 million estate to charity with detailed instructions to divide the money equally among four specific charities: the Superior Diocese of the Catholic Church, Bruce High School in northwestern Wisconsin, the Alzheimer’s Association and the American Cancer Society for local events.

A local wealth management firm, Vigil Asset Management, which was operated by Batterman, was made trustee and tasked with administrating the trust holding Geisler’s money. Batterman administered the trust but nearly a year after Geisler died, Batterman had allegedly only distributed $80,000 of the trust’s assets. This led the American Cancer Society to file suit in a Wisconsin state court to seek the removal of Vigil and Batterman as administrator of the trust.

The article detailed the judicial proceedings of the suit against Batterman and recounted the state court’s ultimate decision to remove Batterman and install a successor trustee, who disbursed the trust’s assets immediately. The article also mentioned how the court in that suit concluded that Batterman violated his fiduciary duties owed to the trust. The article went on to recount that the court ordered Batterman to pay the beneficiaries’ litigation expenses because his conduct “amounted to something of bad faith, fraud or deliberate dishonesty.”

Batterman initially demanded that the Daily Herald retract the article. Instead, the newspaper updated the article the following month by including a new paragraph clarifying that “[a]lthough a judge later found that Batterman had not committed fraud, theft or embezzlement, he ruled that the financial adviser had engaged in multiple acts of ‘bad faith’ and ordered him to be removed from handling the Geisler trust and to pay part of the charities’ legal fees.” The updated article also added the modifier “criminal” before the noun “wrongdoing” so that the sentence read: “Neither Batterman nor Richards has been charged with any criminal wrongdoing in the Geisler case.”

In October 2019, Batterman sued the Daily Herald alleging that the 2018 article was defamatory. The paper moved to dismiss the complaint for failure to state a claim. The District Court judge dismissed the majority of the case after finding that the article was substantially true and would not imply any new criminal misconduct on Batterman’s part to an ordinary reader. The paper then moved for summary judgment on the surviving claim of defamation that had not been dismissed. The District Court granted summary judgment finding that the paper had established that the article’s portrayal of Batterman as a bad faith financial actor was true, and, thus, by definition could not be defamatory. Batterman appealed. Continue reading ›

Seventh Circuit Rules in Favor of Investment Firms in Breach of Fiduciary Duty Lawsuit

October 20, 2022 | Peter S. Lubin and James V. DiTommaso

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 ›