It has long been one of the touchstones of business and commercial litigation that corporate actors (such as, for instance, CEO’s, Presidents, Managers, and the like) are absolutely prohibited from what is known as “self-dealing.”
Self-dealing is a concept that takes on something of a life of its own on a case-by-case basis.
For purposes of providing some frame of reference, the Illinois First District Court of Appeals cited as the “classic example” of such a situation where “either a director appearing on both sides of a transaction or a director receiving a personal benefit from a transaction not received by the shareholders.” See Shaper v. Bryan, 371 Ill. App. 3d 1079, 1088 (1st Dist. 2007).
These claims, although independent in and of themselves, generally tend to veer towards the heading, and are frequently lumped in with, claims that constitute what is known as a “breach of fiduciary duty.” In a nutshell, a fiduciary duty is a duty to act in a manner that a reasonably prudent person would act under similar circumstances. See e.g. Board of Managers v. Schaumburg Ltd. Partnership, 307 Ill.App.3d 614 (1st Dist. 1999).
As the Illinois Supreme Court noted in the case of Neade v. Portes, to prevail on a breach of fiduciary duty claim, a Plaintiff has the burden of proving each of the following elements:
- That a Defendant owed fiduciary duties of absolute loyalty and complete candor to a Plaintiff in their respective corporate positions.
- That notwithstanding these duties, a Defendant diverted such things as, for instance, money, resources, and equipment from a Plaintiff for their own benefits.
- That a Defendant’s decision to divert these things from a Plaintiff was not the result of merely poor or negligent business judgment and discretion, but rather because of fraudulent or willful and wanton misconduct.
- That a Defendant breached his/her/its/their fiduciary duty to Plaintiffs. This part is key — such breach can only occur, if and only if, a Defendant engaged in fraudulent or willful and wanton misconduct in failing to respect whatever they diverted from a Plaintiff.
- That a Defendant’s breach of fiduciary duty was a proximate cause of damages to a Plaintiff; and
- The amount of damages proximately caused by the breach.
See Neade v. Portes, 193 Ill.2d 433, 444 (Ill. 2000).
Simply put, these are not easy cases to make and involve a thorough and detailed examination that probes the specifics of, for instance, a corporate transaction. This analysis would have to focus on not only the ins and outs of a transaction, but also why a Defendant did what they did — does the transaction fit the “classic example” where the Defendant is on both sides of a deal?
Even after you have examined the “why’s,” the inquiry doesn’t end there. If you are suing on a theory of breach of fiduciary duty, the conduct that breached the duty has to rise to the high level of conduct that constitutes either fraud or willful and wanton conduct. As these are particularly difficult circumstances to explain and elaborate upon, anyone curious about what a lawsuit for an alleged breach of fiduciary duty and self-dealing looks like can check out an article about a recent lawsuit filed in Cook County that makes these allegations, and others — although it should be well noted that this is something of a very new lawsuit, and anything put into a complaint is not an established fact or evidence in any way — just an example about what the “nuts and bolts” of a dispute might look like.
These requirements are why only the most skilled and meticulous lawyers take these cases on — they are lengthy, detail-oriented disputes where even favorable fact scenarios can still meet their end if they can’t be carried up to the heightened requirements that the individual elements call for.
You can contact us here 24/7/365 (and we really mean that as we will answer our phone) if you have anyquestions and to learn how we may be able to help you or your family or friends or business in the unfortunate event of an incident of self-dealing or breach of fiduciary duty, a breach of loyalty or the like – in particular, you will find that we listen, take your phone calls and e-mails (and even text messages!). We would be honored to help you with your matters – large or small.
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