Under Illinois law, directors, officers, and controlling shareholders owe certain duties to the corporation or limited liability company or partnership and in some circumstances to each other. In addition, the Illinois Supreme Court has held that certain employees of a company, particularly those that receive substantial salaries and take part in top-level management decisions, owe the same duties to the company as well. These duties are known as fiduciary duties. Illinois law generally recognizes two types of fiduciary duties: the duty of care and the duty of loyalty.Duty of Care
One of the fiduciary duties of officers and directors requires the exercise of due care when making business decisions. The duty of care requires directors and officers to act in good faith and with the level of care that a reasonably prudent person would exhibit in fulfilling their obligations to and directing the activities of the company. Closely aligned with this concept is the business judgment rule. Under the business judgment rule, a fiduciary is typically not liable for business decisions made in good faith and with a certain level of care, even if that decision ultimately turns out to be a bad one and has an adverse effect on the company.
One component of the duty of care is that corporate officers and directors must inform themselves of material facts necessary for them to properly exercise their business judgment. When officers and directors act without becoming sufficiently informed to make an independent business decision, the business judgment rule is defeated and the officers and directors can be subjected to liability.Duty of Loyalty
Under the duty of loyalty, officers and directors must put the interests of the company above individual gain. Fiduciaries must act honestly in their dealings with the company and avoid conflicts of interest with the company. This means that a fiduciary must not usurp corporate opportunities for himself, engage in self-dealing, or take secret profits belonging to the company. A crucial safeguard against liability is disclosure. The Illinois Supreme Court has held that certain actions which would otherwise violate the duty of loyalty are permissible if disclosed to and consented to by the company in advance.Claims for Breach of Fiduciary Duty
When officers or directors act without due care or disloyally, they are subject to liability for breaching their fiduciary duties. To prevail on a claim for breach of fiduciary duty under Illinois law, a plaintiff must prove that: (1) a fiduciary duty existed; (2) the defendant breached that duty; and (3) the breach proximately caused the plaintiff’s injury.
It is always advisable to seek the advice of an experienced business litigation and breach of fiduciary duty attorney if you are a shareholder and suspect an officer or director of breaching his or her fiduciary duties or are yourself an officer, director, or high-level employee being sued for fraud or breach of fiduciary duty.
The business litigation lawyers at Lubin Austermuehle have more than three decades of experience defending and prosecuting breach of fiduciary duty, fraud and other complex business dispute claims. Serving clients throughout Chicago and Cook, DuPage and surrounding counties, our commercial dispute attorneys have acted as lead counsel in numerous emergency business litigation matters and complex commercial disputes including an extended multi-year breach of fiduciary duty trial and accounting action that resulted in recovery of tens of millions of dollars for our clients. We work closely with the best accounting and damages experts to develop winning strategies and have built a reputation on being able to take complex legal concepts and present them in simple and easy to understand terms. We offer free consultations and take the time to learn about your business and the unique issues it faces. To set up a consultation with one of our Chicago business dispute attorneys and Chicago business trial lawyers, please call us toll-free at 630-333-0333 or contact us online.