Articles Posted in Business Litigation

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The Illinois Supreme Court has reversed a lower court’s ruling in a case involving an alleged breach of fiduciary duty.

In this case, the trial court first ruled that, although defendants had breached their fiduciary duties to the plaintiff, Indeck Energy Services, Indeck had failed to establish any usurpation of a corporate opportunity. The court found that both the turbine and the funding opportunities were still available to Indeck at the time of trial.

After a bench trial in favor of the defendant, the appellate court then reversed the trial court’s ruling, holding that it was “immaterial” whether a corporate opportunity still existed for Indeck. 2019 IL App (2d) 190043.  According to the appellate court, once Indeck established that defendants DePodesta and Dahlstrom had breached their fiduciary duty by choosing not to disclose or tender the funding opportunity to Indeck, that “answered in the affirmative the corporate-usurpation question.”

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Michael Maschmeyer was the co-owner of Chicago Roof, Deck and Garden LLC (CRDG) with 42.5% of the interest in the company. Darren Flynn and Tomasz Bartosiewicz owned the remaining 57.5% interest in the company.

Flynn and Maschmeyer had been partners for several landscaping and real estate development businesses in the past. They formed CRDG to provide outdoor living design, construction and landscaping services. All construction work was done by another company owned by Bartosiewicz and CRDG’s captive subcontractor.

Between 2009 and 2014, Maschmeyer deposited more than $1.7 million in checks made payable to CRDG, all for CRDG labor, to his personal bank account and refused to return $850,000 when confronted by Flynn and Bartosiewicz. Instead, Maschmeyer and his wife, Anne, formed Urban Rooftops LLC, a company directly competing with CRDG.

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ABC Acquisition Co.’s breach of fiduciary duty claim was brought against James Trausche, the former president of Aetna Bearing Co. Trausche’s business assets were acquired by ABC.  This issue of law presented a question of first impression under Illinois law about an officer’s obligations to a successor corporation.

After ABC purchased substantially all of Aetna’s assets (including intellectual property) and hired three of Aetna’s employees (including Donald Koziel) Trausche formed AIP Products Corp., hired Koziel and started competing against ABC.

ABC filed a federal complaint in the Northern District of Illinois in Chicago. ABC alleged that Trausche, AIP, and Koziel violated the federal Defend Trade Secrets Act and the Illinois Trade Act (Count 1 and 2). The complaint also alleged that Koziel violated the Computer Fraud and Abuse Act and breached his employment agreement (Count 3 and 4) and that Trausche and Koziel breached fiduciary duties allegedly owed to ABC.

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In this appeal, the defendant Michael Maschmeyer’s conduct as a member of the plaintiff, Chicago Roof, Deck and Garden LLC (CRDG), led to an appeal regarding the claimed interest owed CRDG. Plaintiffs Darren Flynn and Tomasz Bartosiewicz owned the rest of the membership interest.

After a bench trial, the trial judge found that Maschmeyer breached his fiduciary duty as a member of CRDG by taking business opportunities that should have been first offered to CRDG. The trial court entered judgment in favor of CRDG and against Maschmeyer as follows: (1) $1,768,927 in compensatory damages, (2) $236,350 in prejudgment interest, and (3) $651,104 in punitive damages. The total judgment in favor of CRDG and against Maschmeyer was $2,656,381.

However, the trial judge also found that CRDG was required to compensate Maschmeyer for the fair value of his membership interest upon his disassociation from CRDG, which the court found occurred on June 16, 2014. The trial court determined that the fair value of Maschmeyer’s membership interest was $2,867,376 and entered judgment in favor of Maschmeyer and against CRDG in that amount. After setting off the amount of the judgment against Maschmeyer, the trial court’s judgments resulted in a net judgment in favor of Maschmeyer and against CRDG in the amount of $210,995.

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The Illinois Appellate Court has affirmed the decisions of two Cook County judges related to the suit filed by SFG Capital LLC. The suit was filed against Patrick W. Kane in 2010; it was alleged that Kane defaulted on a loan. Following a consent agreement, the trial court entered a $783,000 judgment against Kane payable to SFG. In an attempt to satisfy the judgment, SFG initiated a citation to discover assets proceedings to identify available assets that Kane might have owned.

In 2012, William Platt, an estranged business partner of Kane, signed a promissory note for $1.2 million payable to Kane. The trial court ordered all rights, title and interest in the Platt note to be transferred to SFG on April 14, 2016, with instructions that SFG “may take such further action as necessary to enforce payment on the . . . note.”

Access Realty Group, the plaintiff in this case, acquired the SFG judgment by way of an assignment on April 14, 2017, and became the successor in interest to SFG. Platt is the sole shareholder of Access, as well as its president, secretary and registered agent.
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The issue in this case was whether there was a material breach under Illinois contract law as to American Guardian Holdings or AGH. AGH claimed it was excused from having to pay the final installments totaling $11 million for Steven Freedman’s shares in AGH because it was alleged that Freedman breached restrictive covenants in a settlement agreement.

When AGH agreed to redeem Freedman’s shares in AGH, it insisted on non-competition, non-solicitation and non-interference covenants to block Freedman, his son Max and any of their businesses from competing against AGH in selling “vehicle service contracts” or “extended warranties” through auto dealers.

Freedman’s other businesses included a brokerage that provided policies to owners of recreational vehicles, plus a personal-and-commercial-lines insurance agency called American Integrity Insurance Solutions, or AIIS, which was run by Freedman’s son, Max.

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A breach of lease case resulted in a $278,198 default judgment, which was Count II of a Complaint brought by A.L. Dougherty Real Estate and Phyllis K. Dougherty. The complaint was filed against Cube Global LLC and March Fasteners Inc.  The complaint alleged that Cube Global was liable as March’s alter ego.

A bench trial was held.  The plaintiff presented evidence that Cube Global, which was incorporated while the lease case was pending, wound up with all of March Fastener’s assets and customers.

With the underlying decree boosted by fees, costs and interest, the judgment against Cube Global was $676,222. The judgment was against Su Chin Tsai, whose 16-year-old daughter was listed as Cube’s incorporator, and it totaled $435,584.

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The issue in this case was whether the financial condition of Wexford Health Sources, the defendant in this federal lawsuit, is relevant for Federal Rule of Civil Procedure 26(b) to apply. This rule limits discovery to that which is “relevant to any party’s claim or defense.” If a corporate defendant’s wealth may not be considered when assessing punitive damages, it is not “relevant,” but if it may be properly considered then, of course, it is relevant. In this U.S. Federal District Court of Illinois (Central District) lawsuit, the initial question to be answered was whether Wexford’s financial condition could be investigated through discovery; this was answered mostly by the case of Zazu Design v. L’Oréal, 979 F.2d 499 (7th Cir. 1992).

In Zazu, a case relied upon by Wexford, the defendant in this case, the court considered the defendant’s appeal in a trademark infringement action. The court reversed and remanded, finding that the plaintiff did not have superior rights in trademark to the defendant and, even if it had, the damages award was excessive.

Regarding the punitive damages award, the court noted that although courts “take account of a defendant’s wealth when an amount sufficient to punish or deter one individual may be trivial to another,” such may not be the case when the defendant is a corporation. The court explained:

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Doug Miller owned two companies in Indiana:  E.T. Products, which blended and sold fuel-additive products, and Petroleum Solutions, which blended and sold lubricant products.

Petroleum Solutions also supplied a few customers with fuel additives from E.T. Products.

In January 2011, a group of investors led by Tom Blakemore purchased E.T. Products. As part of the sale, Miller and his son, Tracy, signed essentially identical non-competition agreements.

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Trade secrets can be among the most valuable assets of any business. Laws in Illinois and on the federal level have long protected trade secrets.

Before 1995, the protection of trade secrets was based on the common law as defined by the Restatement of Torts. Illinois has adopted the Illinois Trade Secrets Act, 765 ILCS 1065/1, et seq.

The Illinois Trade Secrets Act is modeled on the Uniform Trade Secrets Act. There are many instances in which the Illinois Trade Secrets Act could be utilized.

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