The Illinois Appellate Court found that a marketing company adequately pleaded a claim for breach of fiduciary duty against one of the former founders of the company who left to work for a competitor. James P. Keane Sr. was one of the founders of Advantage Marketing Group Inc. and owned 35% of the company. When he left his company to purchase and operate a competing business, Advantage sued. The trial court dismissed Advantage’s breach of fiduciary duty claim finding that because Keane was not an officer or director at the time of the alleged conduct, Advantage failed to establish that he owed a fiduciary duty to the company.
The appellate court rejected the argument that only officers or directors of a company owe fiduciary duties to the company. The Court explained that the determination of whether a fiduciary relationship exists must be made based on an examination of the realities of the relationship rather than the employee’s title. Accordingly, the Court examined the nature of Keane’s relationship with Advantage to determine if Advantage adequately alleged that Keane owed fiduciary duties to the company.
Keane, although not being a company officer for several years prior to his departure, allegedly held himself out to prospective customers as an owner. The Court also pointed out that he also allegedly received the same bonus as the majority shareholder and director of Advantage. The complaint also alleged that Keane was a “principle employee . . . with wide-ranging responsibilities equivalent to those of an officer.”
Keane’s duties according to the complaint included developing and maintaining Advantage’s financial records and had full access to the company’s accounting system. In addition, he was responsible for exploring strategic acquisitions, including the purchase of competing for letter-shop businesses. Advantage detailed in the complaint instances when Keane participated in the negotiation and acquisition of related businesses, stating that he was “a key point of contact throughout 2013 regarding [Advantage’s] opportunity to move or acquire property to conduct business operations.”
The Court also examined the conduct Keane was accused of engaging in to determine if such conduct could reasonably be considered as breaching any fiduciary duty Keane may have owed to Advantage. The complaint alleged that nearly two years before leaving Advantage, Keane “started to withhold information for himself and communicated outside [Advantage] channels using his personal email account while failing to forward information that would have benefitted [Advantage].”
The complaint alleged that in 2014 Keane transferred his corporate cell phone number to his personal account without Advantage’s knowledge, which allowed him to keep his number after leaving Advantage. The complaint went on to allege that, in August 2015, Keane formed Keane Inc. d/b/a The Mail House and registered eight internet domains using variations of the words Mail House. In September 2015, Keane allegedly kept a referral he received from another company, forwarding the referral to his own personal email account. A week later, he resigned from Advantage to work at The Mail House.
Keane also allegedly disabled Advantage’s website forcing Advantage to establish an entirely new website. The complaint further alleged that Keane registered a domain that differed from Advantage’s by only one letter and contacted Advantage’s customers telling them that Advantage was in danger of going out of business due to financial troubles.
The Court found that Advantage’s complaint adequately accused Keane of usurping corporate opportunities in violation of the corporate opportunity doctrine which prohibits a corporation’s fiduciary from taking advantage of business opportunities belonging to the corporation. To state this claim, the Court explained, Advantage needed to allege facts that if proven would establish (1) the existence of a fiduciary duty; (2) a breach of that duty; and (3) an injury proximately caused by the breach.
To this end, the Court noted that Advantage alleged that Keane was a principal employee with wide-ranging responsibilities akin to those of an officer and that he misappropriated for himself a corporate opportunity by acquiring The Mail House, a company that competed directly with Advantage.
The Court rejected the argument that only officers and directors can be fiduciaries explaining that “every person who accepts the responsibility of acting on behalf of another is a fiduciary.” In short, the Court held, any agent owes a fiduciary duty to the principal. Based on the allegations of Keane’s duties and responsibilities, the Court found that the complaint adequately pleaded that Keane owed fiduciary duties to Advantage and that the alleged conduct constituted a breach of those duties proximately causing the complained-of injury.
You can read the Court’s full opinion here.
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