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Root Consulting Inc. v. William Insull, 2016 WL 806556 (N.D. Ill., March 2, 2016)

An officer and shareholder of a closely held corporation has a fiduciary duty not to compete with the company even if he is forced out of the organization.

William I. was sued by Root Consulting Inc. and fellow shareholders for breach of fiduciary duty after he formed a competing company and solicited business from Root customers, while still a vice president and shareholder of Root (Root Consulting Inc. v. William Insull (2016 WL 806556)). Root is an Illinois-based information technology company with operations in Illinois and Texas; William I. is a Texas resident. William I. claimed his employment ended in July 2013 when he was “frozen out” (or constructively terminated) by the other shareholders, and therefore he had no fiduciary duty to refrain from competition. However, U.S. District Judge Robert Blakey found that he remained vice president and 47.5% shareholder until February of 2014, and that he continued to do work for Root after his alleged termination date.

Under Illinois law, corporate officers owe a fiduciary duty to their corporation and to its shareholders and may not enrich themselves at the expense of the corporation. Under the “corporate opportunity” doctrine, a fiduciary cannot take personal advantage of business opportunities that arise from and rightfully belong to the corporation. The officer’s resignation does not relieve him of liability if he acquired the opportunity before his employment ended. Continue reading ›