Chicago Business Litigation Lawyer Blog
An Illinois appeals court recently held that the plaintiffs in a commercial litigation lawsuit could not sustain claims for fraud, breach of fiduciary duty, conversion, and tortious interference with contract because the claims were untimely. The Court also affirmed dismissal of the plaintiffs’ claims for respondeat superior liability, prejudgment interest and attorney’s fees on the basis that the substantive underlying claims were untimely or had been released by the plaintiffs.
The appeal stemmed from a November 2016 lawsuit filed by Edward Shrock, a minority owner of the company Baby Supermall, LLC, against the company’s bank and the bank’s vice president for allegedly aiding the company’s majority owner, Robert Meier, in using the company as his “personal piggy bank” and misappropriating millions of dollars from the company during a decade-long scheme. According to Schrock’s complaint the company was eventually driven to insolvency as a result of Meier’s scheme.
The 2016 lawsuit followed on the heels of another lawsuit Schrock filed against Meier in 2009, which alleged nearly the same underlying facts as alleged in the 2016 lawsuit against the bank. In the 2009 suit, Schrock won an injunction enjoining Meier and his family from taking payments from the company under certain “profit-sharing” plans Meier had drafted and entered with the company. Following entry of the injunction in the 2009 case, Schrock won an approximately $11 million jury verdict against Meier, which Schrock later released in 2018 even though the judgment had only been partially satisfied.
The bank and vice president moved to dismiss Schrock and the company’s claims asserting that (1) the claims were barred by the applicable five-year statute of limitations, (2) they failed to state claims for intentional interference and respondeat superior liability, and (3) there was no legal basis for awarding prejudgment interest or attorney’s fees. Following denial of most of that motion, the defendants sought judgment on the pleadings arguing that the claims for fraud and breach of fiduciary duty were time barred and had been released by Schrock’s partial satisfaction and release of judgment entered in the 2009 lawsuit against Meier. The trial court granted the defendants’ motion.
The plaintiffs filed a motion to reconsider the judgment arguing that the intent of the parties to 2009 lawsuit controlled whether Schrock had released the bank and vice president when entering the partial satisfaction and release of judgment in the 2009 lawsuit. Plaintiffs attached a settlement agreement from the 2009 lawsuit as proof that Schrock had not intended to release anyone but Meier. The trial court denied the motion to reconsider.
The plaintiffs appealed, contending that the trial court erred in granting judgment on the pleadings, in denying plaintiffs’ motion to reconsider, and in dismissing the claims for conversion, tortious interference with contract, and respondeat superior liability.
The Court first addressed the granting of judgment on the pleadings. It agreed with the trial court that the applicable statute of limitations was five years. As such the Court determined that Schrock’s claims must have been filed by February 2014 to be timely as Schrock must have discovered the alleged wrongdoing when he filed his lawsuit against Meier alleging the same injury. The Court rejected plaintiffs’ argument that he did not discover his injury until he discovered the party who caused the injury. In rebuffing plaintiffs’ argument, the Court emphasized that “we have repeatedly rejected the notion that the identity of the party who caused the plaintiffs’ injury is a prerequisite to the running of the statute of limitations.”
The Court then addressed plaintiffs’ arguments for why the statute of limitations should have been tolled. The Court did not buy any of these arguments. The Court rejected the argument that fraudulent concealment under 735 ILCS 5/13-215 tolled the statute of limitations, noting that this section applies only to the concealment of causes of action and not to concealment of the identity of a defendant. Similarly, the Court rejected the argument that equitable estoppel extended the time to file the claim. The Court found that the bank and vice president did nothing to mislead Schrock or the company into filing their claims outside of the applicable statute of limitations.
The Court also rejected plaintiffs’ argument that the continuing violation rule tolled the statute of limitations. The Court first noted that the continuing violation rule only applied to torts, and breaches of fiduciary duty are not torts. The Court went on to hold that the rule did not apply to the fraud claims, though they sounded in tort, because each alleged fraudulent action by the bank was a distinct instance of misconduct and “the continuing violation rule does not apply to a series of discrete acts, each of which is independently actionable, even if those acts form an overall pattern of wrongdoing.”
Finally, the Court rejected the argument that the adverse domination doctrine tolled the statute of limitations. The adverse domination doctrine tolls the statute of limitations for claims by a corporation against its officers during the time the corporation is controlled by those officers. The doctrine creates a rebuttable presumption that the corporation does not “know” of its own injuries when it is controlled by the officers who caused those injuries. The Court found, however, that Schrock knew of the company’s injuries as early as 2009 and no later than March 2011 and had motivation to bring suit against the defendants at that time. Further, the Court note that Schrock had the ability to bring a derivative suit on behalf of the company under section 40-1 of the Illinois Limited Liability Company Act.
Having found that the plaintiffs’ claims were time barred the Court did not even consider or address the grant of judgment on the pleadings regarding the release of judgment.
The Court’s full opinion is available here.
The breach of fiduciary duty and commercial litigation attorneys at Lubin Austermuehle defend and prosecute breach of fiduciary duty, shareholder oppression, and business fraud lawsuits and have been doing so for more than three decades. Super Lawyers named Wheaton and Chicago business litigation and fiduciary duty attorneys Peter Lubin and Patrick Austermuehle a Super Lawyer and Rising Star respectively in the categories of Business Litigation, Class Action, and Consumer Rights Litigation. Contact the experienced business dispute attorneys at Lubin Austermuehle to set up a consultation by calling at 630-333-0333 or contacting us online.