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Excessive management fees charged by a majority owner can potentially be the basis for a derivative lawsuit in certain circumstances. In corporate law, a derivative lawsuit is a legal action brought by shareholders on behalf of a corporation against third parties, often including insiders such as officers, directors, or controlling shareholders. The key issues in such a lawsuit typically involve allegations of breach of fiduciary duty, abuse of control, fraud, or mismanagement.

When a majority owner charges excessive management fees, it may be construed as a breach of fiduciary duty or misuse of their position to the detriment of the corporation and its minority shareholders. In such cases, the following elements are often considered:

  1. Breach of Fiduciary Duty: Majority owners owe a fiduciary duty to the corporation and its shareholders. Charging excessive fees could be seen as a breach of this duty, especially if it harms the corporation’s financial health or is not in the best interest of all shareholders.
  2. Fairness and Reasonableness: The fees must be fair and reasonable. If the fees are exorbitant compared to industry standards or the services rendered, it could be a ground for legal action.
  3. Impact on Minority Shareholders: If the excessive fees adversely affect the minority shareholders or the value of their shares, it can be a strong basis for a derivative suit.
  4. Corporate Governance and Approval Processes: The procedures followed in approving the fees are also important. If the majority owner bypassed normal governance processes or used their influence to approve the fees without proper oversight, it could strengthen the case for a lawsuit.
  5. Jurisdiction and Specific Laws: Laws regarding fiduciary duties and shareholders’ rights vary by jurisdiction. The specific legal standards and precedents in the jurisdiction where the corporation is incorporated will play a critical role.

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In order to win a consumer fraud case about a rebuilt wrecked automobile or vehicle, it would be necessary to demonstrate several key points.

1. The seller misrepresented or concealed the actual condition of the vehicle, such as by failing to disclose that the vehicle was a rebuilt wreck or had sustained significant collision damage, or by falsely advertising the vehicle’s condition or mileage. This could include selling a vehicle with a defective paint job as new, or failing to disclose known safety issues, such as the vehicle’s tendency to accelerate unintentionally.

2. The defendant knew about the actual condition of the vehicle but failed to disclose it in the case of an omission of material fact claim. This could be demonstrated by showing that the seller was more involved in the purchase and sale of vehicles than a private party involved in an isolated transaction, or that a cursory inspection by someone experienced in the automobile business would have revealed the damage. In the case of inaccurate or false statements, knowledge of the falsity of the statement is not required as innocent misstatements can state a claim for consumer fraud.

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The elements of a wrongful removal or freezing out of a partner in a business context include the following:

1. Exclusion of a partner from participation in the business: This implies that a partner is denied the right to participate in the operations and decisions of the business [1]. For instance, actions such as serving a partner with a notice of default, stating that they are no longer a partner, removing their name from partnership tax returns, and refusing to provide them with access to partnership books, records, and information can be seen as a wrongful exclusion.

2. Violation of implicit duty of good faith between partners: Partners owe each other the duty to exercise the highest degree of honesty and good faith in their dealings and in the handling of partnership assets. A genuine issue of material fact that precludes summary judgment on whether expulsion of a partner violated this duty also constitutes an element of a wrongful removal or freeze out.

3. Breach of the right of a partner to a formal accounting: Any partner has the right to a formal accounting in relation to partnership affairs. If this right is breached through a wrongful exclusion, it forms one of the elements.

4. Disregard of the partner’s advice and wishes, irreconcilable differences and personal ill-will between the partners, refusal to keep accounts open to the co-partners, refusal to account at reasonable times, and refusal to pay over profits as agreed: These are also listed as acts and circumstances that can justify a decree of dissolution and therefore can be seen as elements of wrongful removal or freeze-out.

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Choosing the best attorneys for a corporate oppression matter in Illinois involves considering several factors. Look for a legal team with extensive experience in corporate law and specifically in handling shareholder disputes and oppression cases. They should have a strong track record of successfully advocating for minority shareholders’ rights. Also, consider firms that offer personalized attention to understand the unique aspects of your situation and provide tailored legal strategies. It’s important to choose attorneys who are adept in both negotiation and litigation, as resolving these disputes can require a flexible approach. Firms like Lubin Austermuehle, known for their experience in business litigation, including shareholder and LLC member disputes, is a good choice. Continue reading ›

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In Illinois, the pleading requirements for consumer fraud and common law fraud differ in several key aspects:

  1. Common Law Fraud: To establish a case for common law fraud, you must demonstrate five elements:
    • A false statement of material fact made by the defendant to the plaintiff.
    • The defendant knew the statement was false.
    • The statement was made with the intent that the plaintiff would rely on it.
    • The plaintiff did rely on the statement.
    • The plaintiff suffered damage due to this reliance.
  2. Consumer Fraud: Under the Illinois Consumer Fraud Act, the requirements are slightly different and only four elements are needed:
    • A deceptive act or unfair practice (involving a public policy violation) by the defendant.
    • The defendant intended for the plaintiff to rely on the deception.
    • The deception or unfair practice occurred in the course of trade or commerce.
    • The plaintiff suffered actual damage as a result of the defendant’s violation of the act.

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Illinois has two rules that can be used to dismiss cases which allows for more flexibility in defending some actions then in federal court where there is only one means to seek dismissal of an action.

A Section 2-615 motion to dismiss and a Section 2-619 motion to dismiss under Illinois law are two distinct legal tools, each serving specific purposes.

A Section 2-615 motion to dismiss tests the legal sufficiency of a complaint by challenging whether the complaint states a claim upon which relief can be granted. This motion is concerned with defects appearing on the face of the complaint and does not rely on matters outside the complaint. It admits all well-pleaded facts and attacks the legal sufficiency of the complaint [5], [7], [12]. The court, in ruling on a 2-615 motion, considers only the allegations in the pleadings.

On the other hand, a Section 2-619 motion to dismiss acknowledges the legal sufficiency of the complaint but asserts that there are certain external defects or defenses that defeat the claims. It admits the legal sufficiency of the plaintiff’s claim but asserts ‘affirmative matter’ outside of the pleading that defeats the claim. This motion is sometimes referred to as a ‘Yes, but’ motion because it essentially says, ‘Yes, the complaint was legally sufficient, but an affirmative matter exists that defeats the claim’.

The two types of motions can be combined under Section 2-619.1, but it is important to maintain procedural distinctions between them. Each part of a combined motion should be limited to and specify that it is made under one of Sections 2-615, 2-619, or 2-1005, and should clearly show the points or grounds relied upon under the Section upon which it is based.

In dealing with these motions, the court interprets all pleadings and supporting documents in the light most favorable to the plaintiff. Furthermore, dismissals pursuant to sections 2-615, 2-619, and 2-619.1 are reviewed de novo. Continue reading ›

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Choosing Lubin Austermuehle for business litigation offers several compelling advantages. Firstly, the firm is known for its commitment to achieving significant victories and effecting change for clients and the community. This dedication is reflected in the firm’s ability to deliver high-quality services with a level of personal attention that is sometimes lacking in larger law practices​​.

Lubin Austermuehle’s team is adept at handling a wide range of business litigation matters. This includes shareholder, owner, LLC member, and partnership disputes, trade secret theft, copyright and trademark infringement, business fraud, non-compete agreements, and restrictive covenants​​​​. Their experience also extends to dealing with emergency (preliminary) injunctive relief in business disputes, class actions, consumer fraud, employment litigation, and real estate litigation​​.

The firm’s reputation for integrity and success is well-recognized in the Chicagoland area and among peers. Notably, Peter Lubin has been distinguished as a “Super Lawyer,” and Patrick Austermuehle has been named a “rising star” by a prestigious rating service. These accolades reflect their commitment to legal excellence and professionalism​​.

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In Illinois, tortious interference with contract and tortious interference with prospective business relations are two distinct torts with different pleading requirements.

To establish a case for tortious interference with contract, the plaintiff must show the following [7]:
1) Existence of a valid and enforceable contract between the plaintiff and another party
2) The defendant’s awareness of this contractual relationship
3) The defendant intentionally and unjustifiably induced a breach of the contract, which results in a subsequent breach by the other contracting party
4) The plaintiff suffered damages as a result of the breach. Continue reading ›

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Diversity of citizenship cannot be asserted merely on information and belief when it comes to the members of a Limited Liability Company (LLC). For diversity jurisdiction purposes, the citizenship of an LLC is determined by the citizenship of each of its members. A simple declaration of diversity of citizenship is not enough. The court needs to understand the identity and citizenship of each member. In case any member is an unincorporated association, such as an LLC or partnership, the citizenship must be traced through all layers of ownership to ensure no member shares a common citizenship with the opposing party.

Merely claiming that all members are citizens of a certain state or that no members are citizens of a certain state is insufficient. It is also not enough to claim that an LLC was organized under a specific state’s laws, maintains its principal place of business in a certain state, or that an LLC has a parent corporation. The citizenship of an LLC must be proven by underlying facts, not merely alleged on information and belief. If the members of an LLC have members, the citizenship of all those members must also be set forth. Continue reading ›

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“As is” and certain other non-reliance or purported exculpatory clauses under the common law, have not provided a defense against fraud in Illinois courts for decades. This is particularly important where, as in most automobile sales transactions, one party is unsophisticated, and the other party, like a used car dealer, is an expert in the field. As Zimmerman v. Northfield Real Estate, Inc., 156 Ill. App. 3d 154, 164 (1st Dist. 1986), found: “Exculpatory clauses are not favored and are strictly construed and must have clear, explicit and unequivocal language showing that it was the intent of the parties.” And the Consumer Fraud Act contains an anti-waiver provision which makes a sold “as is” clause defense to used car auto fraud matter a non-starter for statutory fraud, even if the common law already did not do that.

The Consumer Fraud Act, like other analogous Illinois statutes, such as the Real-Estate Disclosure Act, has an anti-waiver provision which preludes use of an “as is” clause or the no warranty clause present here to defeat a claim for misrepresentation or knowingly failing to disclose material defects. As the Court in Bauer v. Giannis, 359 Ill.App.3d 897, 906 (2d Dist. 2005) holds:

The policy prohibiting waiver of the obligations under the Act applies with equal force here. By insisting on the “as is” clause, which provides that plaintiff accepted the property without any warranty or representation, defendants in effect sought to obtain a waiver of their obligation under the Act to disclose material defects. … We see nothing in the “as is” provisions of the disclosure form that may be read as allowing a seller to contract out of its disclosure obligations.

Used car dealers may dream that “as is” language or a warranty disclaimer clause ends their obligations to tell the truth and saves them from having to disclose known material defects but that is not the law. If that were the case, there would be no used car consumer fraud claims unless the claims arose out of false written statements labeled as warranties. Used car dealers would then be free to sell cars that they knew were dangerous to drive and that they knew had defects by simply inserting an “as is”, no warranty or other exculpatory clause into a form contract, and then concealing and omitting to disclose those known defects. This would not only violate the Consumer Fraud Act’s prohibition on selling products with known material defects simply by failing to disclose them or by misrepresenting that they did not exist, but it would also violate the dealers’ obligations under the Vehicle Code requiring that they put safe cars on the road. Allowing used car dealers to sell dangerous cars would endanger not only the buyer and the buyer’s family and passengers but also the public. The Vehicle Code makes it: “unlawful for any person to . . . knowingly permit to be driven or moved on any highway any vehicle . . . which is in such unsafe condition as to endanger any person or property …” 625 ILCS §5/12-101(a). Continue reading ›

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