Chicago Business Litigation Lawyer Blog
Under Illinois law, defenses for a partner accused of breaching fiduciary duties to the partnership and his other partners can be varied and nuanced (LID Associates v. Dolan, 324 Ill.App.3d 1047 (2001)), (Pielet v. Hiffman, 407 Ill.App.3d 788 (2011)). Here are some potential defenses:
1. Compliance with Partnership Agreement: A partner who has acted in accordance with an express authorization in the partnership agreement may not be deemed in breach of fiduciary duties (1515 North Wells, L.P. v. 1513 North Wells, L.L.C., 392 Ill.App.3d 863 (2009). However, no language in a partnership agreement, however clear and explicit, can reduce a partner’s fiduciary duty toward other partners (Pielet v. Hiffman, 407 Ill.App.3d 788 (2011)).
2. Good Faith and Fairness: A partner can defend on the grounds that he has acted in good faith and fairness in his dealings with other partners (Winston & Strawn v. Nosal, 279 Ill.App.3d 231 (1996)). Under Illinois law, a fiduciary relationship exists between partners and each is bound to exercise the utmost good faith in all dealings and transactions related to the partnership business (Pielet v. Hiffman, 407 Ill.App.3d 788 (2011)), 1515 North Wells, L.P. v. 1513 North Wells, L.L.C., 392 Ill.App.3d 863 (2009)).
3. Lack of Personal Advantage: If a partner can show that he has not advantaged himself at the expense of the firm, this could be a defense against an accusation of fiduciary duty breach.
4. Right to Manage Partnership Affairs: If a partner was managing the affairs of the partnership and did not conceal, misrepresent or seek to take advantage of his partner, he might be able to argue that he was not in breach of fiduciary duties (Mermelstein v. Menora, 372 Ill.App.3d 407 (2007)).
5. Discrepancies in Accounting or Interpretation of Rights and Duties: Discrepancies or errors in accounting, or misinterpretations of rights and duties under partnership agreements, can be invoked as a defense, especially if the partner did not seek personal advantage.
6. Duty of Good Faith: If it can be shown that the partner always exercised good faith in his dealings with other partners, he can defend against the accusations (Pielet v. Hiffman, 407 Ill.App.3d 788 (2011)), (Winston & Strawn v. Nosal, 279 Ill.App.3d 231 (1996)).
Remember that each case is unique and the success of these defenses can depend on the specifics of the partnership agreement and the facts of the case. These defenses are not exhaustive and other defenses may be available depending on the specifics of a case. Continue reading ›