Illinois Appellate Court Rules that Employer's Complaint States a Claim against Employee for Breach of Fiduciary Duty and Tortious Interference

On May 10, 2019, the Illinois Appellate Court, First District, reversed the trial court's dismissal of an employer's two-count complaint for breach of fiduciary duty and tortious interference with prospective economic advantage.  Advantage Marketing Group, Inc. v. Keane, 2019 IL App (1st) 181126 (First District May 10, 2019).  The First District held that the employer's complaint stated causes of action against the employee for breach of fiduciary duty and tortious interference, even though the employee was not an officer or director of the company.  The employer alleged that the employee breached his fiduciary duty to the employer when he allegedly failed to disclose and misappropriated a corporate opportunity to purchase a competing business.  Under Illinois law, an employee owes fiduciary duties to his or her employer, which arise from the employment relationship.  These include the duties of loyalty and fidelity as well as the duty to avoid self-dealing at the expense of the employer.

To state a claim for breach of fiduciary duty, a plaintiff must allege: (1) that a fiduciary duty exists; (2) that the fiduciary duty was breached; and (3) that the breach proximately caused an injury to the plaintiff.  The corporate opportunity doctrine prohibits a corporation's fiduciary from misappropriating corporate property and from taking advantage of business opportunities belonging to the corporation.  The Illinois Supreme Court has held that it is a breach of fiduciary duty for an employee to seize for his or her own advantage a business opportunity which rightfully belongs to the corporation by which he or she is employed.  An employee also breaches his or her fiduciary duty when he or she commences business as a competitor of his or her employer while still employed by the employer.  The First District ruled that the employer's complaint stated a claim for breach of fiduciary duty by alleging that the employee misappropriated for himself a corporate opportunity to acquire a competing business so that he could enter into direct competition with the employer.  The defendant was a key employee whose substantial duties and responsibilities as an employee, as well as his compensation and status as a minority shareholder put him in a position to act solely for the benefit of his employer.  Moreover, the Illinois Supreme Court has held and reaffirmed that employees, as well as officers and directors, owe a duty of loyalty to their employer.  Thus, the employee owed a fiduciary duty to the employer, which he breached by misappropriating, for his own benefit, the employer's corporate opportunity to purchase a competing business.  The breach of fiduciary duty proximately resulted in injury to the employer by virtue of the loss of the corporate opportunity to purchase the competitor, as well as the direct competition from the competing business after the employee acquired it.

Additionally, the First District held that the employer adequately alleged a claim for tortious interference with prospective economic advantage.  To state a claim for tortious interference with prospective economic advantage, a plaintiff must allege: (1) the existence of a valid business relationship or expectancy; (2) knowledge of the relationship or expectancy on the part of the defendant; (3) an intentional and malicious interference inducing or causing a breach or termination of the relationship or expectancy; and (4) resultant damage to the party whose relationship has been disrupted.  A plaintiff states a cause of action only if she alleges a business expectancy with a specific third party as well as action by the defendant directed toward that third party.  A claim for intentional interference must set forth facts which suggest that the defendant acted with the purpose of injuring the plaintiff's expectancy.  In this case, the employer alleged the existence of a valid business expectancy in that the employer was interested in acquiring the competing business, knowledge of that expectancy on the part of the employee, and facts showing that the employee acted with the purpose of injuring the employer's expectancy in that he usurped a corporate opportunity for his own benefit and to the detriment of the employer.  The employee's acquisition of the competing business terminated the employer's expectancy to acquire the business.  Thus, the employer sufficiently pled a claim for tortious interference with prospective economic advantage.