Fiduciary Duty of Loyalty

Under Illinois law, corporate officers, directors, and controlling shareholders owe certain duties to the corporation and, through the corporation, to the shareholders. These duties are known as fiduciary duties. State law generally delineates the types and contours of those duties but broadly speaking those duties are generally subdivided into the duty of care and the duty of loyalty. In Illinois, the duty of loyalty is recognized by statute in the Illinois Business Corporation Act of 1983 (“BCA”).

The duty of loyalty requires a corporate officer, director or controlling shareholder to put the interests of the corporation above his or her own personal interests. The duty of loyalty often arises in circumstances involving conflicts of interest, corporate opportunities, and competing with the corporation. Under Illinois law, an officer must not engage in self-dealing, take secret profits that belong to the corporation, or seize corporate opportunities.

A conflict of interest exists where the director is directly or indirectly on both sides of a transaction with the company. Even if a director is not interested in a transaction, he or she must be capable of rendering independent judgment to avoid breaching his or her duty of loyalty. Circumstances where the duty of loyalty is most often implicated include the following:

  1. Sales to or purchases by the corporation from controlling shareholders or entities in which the shareholders have an interest;
  2. Oppression of minority stockholders by controlling stockholders in matters such as corporate acquisitions, particularly where the controlling shareholder has an interest in the entity acquiring or being acquired;
  3. Usurping corporate opportunities (e.g. buying property that an officer knows the company would have been interested in purchasing);
  4. Use of corporate funds to perpetuate control (e.g. freezing out minority shareholders);
  5. Excessive compensation;
  6. Insider trading;
  7. An officer’s starting or purchasing a controlling interest in a competitor of the company;
  8. Refusing demands of stockholders to commence derivative suits;
  9. Failing to disclose conflicts of interest to the other directors or shareholders of the company; and
  10. Improper use of corporate position, property, or information.

Usurpation of corporate opportunity claims arise when a fiduciary secretly takes a corporate opportunity for himself or herself without allowing the corporation to take advantage of the transaction. As the Illinois Supreme Court explained in Kerrigan v. Unity Savings Assoc., 58 Ill.2d 20 (1974), the duty of loyalty requires a director to tender a corporate opportunity to the corporation before the director can personally take advantage of the opportunity.

The BCA recognizes that the purpose of the duty of loyalty is to prevent the abuse of power and to ensure the fairness of corporate transactions in which the officer or director has a direct or indirect interest. While the law previously altogether precluded dealings between officers, directors, or controlling shareholders and their corporations, now the Illinois Supreme Court has explained that these insiders may deal with their corporations, provided that they fully discloses all pertinent information and acts fairly and in the best interest of the company.

Fiduciary duties generally terminate when the fiduciary relationship terminates, including when the officer or director is fired. Section 7.9 of the BCA, however, allows a shareholder in a close corporation (corporation with a limited number of shareholders) to terminate his or her fiduciary duties to the company by waiving his or her voting and management rights in the company.

Our Chicago breach of fiduciary duty and business litigation attorneys have defended and prosecuted minority oppression, business divorce, stolen corporate opportunity and breach of fiduciary duty lawsuits for more than three decades.

Super Lawyers named Chicago and Elmhurst business litigation and fiduciary duty attorneys Peter Lubin and Patrick Austrermuehle a Super Lawyer and Rising Star respectively in the Categories of Class Action, Business Litigation and Consumer Rights Litigation. Lubin Austermuehle’s Oak Brook and Chicago shareholder oppression lawyers have over thirty-five years of experience litigating complex class action, consumer rights and business and commercial litigation disputes. We handle emergency business lawsuits involving injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist businesses and business owners who are victims of fraud.

Lubin Austermuehle’s Wheaton, Naperville, and Oak Brook litigation attorneys have more than thirty-five years of experience helping business clients unravel the complexities of Illinois and out-of-state business laws. Our Chicago business divorce litigation lawyers represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners and shareholders as well as lawsuits between businesses and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices near Aurora and Elgin, we serve clients throughout Illinois and the Midwest. If you’re facing a business or class-action lawsuit, or the possibility of one, and you’d like to discuss how the experienced Illinois breach of fiduciary duty attorneys at Lubin Austermuehle can help, we would like to hear from you. To set up a consultation with one of our Chicago class action attorneys and Chicago business trial lawyers, please call us toll-free at 833-306-4933 or contact us online.

Client Reviews
★★★★★
"I was referred to Peter Lubin from someone in the car business to handle a law suit. From the moment I made the appointment Peter and his staff were outstanding. This wasn't an easy case, most lawyers had turned me down. However, Peter took the time to meet with me and review everything. He took on the case, and constantly communicated with me about updates and case information. We beat this non-compete agreement case in record time. I would use him again and recommend him to my closest family and friends. 5 stars is not enough to thank him for his service." Sebastian R.
★★★★★
"I worked on two occasions with Peter Lubin and his staff. They took their time with me and discussed each and every item in detail. The group makes you feel like you are part of the family and not just another hourly charge. I recommend Peter to anyone who asks me for a referral. If you are looking for a top notch attorney at a reasonable rate, look no further than Lubin Austermuehle." Kurt A.
★★★★★
"Excellent law firm. My case was a complicated arbitration dispute from another state. Was handled with utmost professionalism and decency. Mr. Peter Lubin was able to successfully resolve the case on my behalf and got me a very favorable settlement. Would recommend to anyone looking for a serious law firm. Great staff and great lawyers!" Albey L.
★★★★★
"I have known Peter Lubin for over 30 years. He has represented me on occasion with sound legal advice. He is a shrewd and tough negotiator leading to positive outcomes and averting prolonged legal hassles in court. He comes from a family with a legal pedigree and deep roots in Chicago's top legal community. You want him on your case. You need him on your opponents case. He won't stop fighting until he wins." Christopher G.