Dexia proceeded to file suit against Rogan, Ehman and two other corporations which they controlled and operated (“corporate defendants”), alleging that Edgewater's default was due to a complex, unlawful scheme between the defendants. The scheme involved efforts to funnel money out of Edgewater for the personal benefit of Rogan and Ehman by the payment to the corporate defendants of rent and other sums for services allegedly supplied by the corporate defendants to Edgewater. The corporate defendants sought to have the complaint dismissed, arguing that they owed no duty to Dexia and the payments they received were made in the normal course of business.
In denying the motion to dismiss, the court held that, under Illinois law, it is possible for a party to bring an action against a person or entity that colludes in or induces a breach of fiduciary duty. A party participates in a breach of fiduciary duty if the party affirmatively assists or helps conceal the breach or, by virtue of failing to act when required to do so, enables the party to proceed with or continue the breach. The crucial allegation in stating such a cause of action is that the defendant had knowledge of the scheme to defraud.
Upon reviewing Dexia’s complaint, the court concluded the complaint contained sufficient allegations to show the corporate defendants may have colluded in the alleged breach of fiduciary duty by Rogan and Ehman because the corporate defendants had knowledge, through Rogan, that the payments they received from Edgewater were designed to funnel money to Rogan and Ehman. The fact that the receipt of the payments may have been “business as usual” did not defeat Dexia’s claim because a party can be held liable for participating in a breach of fiduciary duty by engaging in activities that are perfectly usual and legal as long as those activities are done with the requisite knowledge of the breach of fiduciary duty. Since Rogan, and thus the corporations, had knowledge of the scheme, Dexia could proceed against the corporate defendants.
Additionally, the court held that the scheme to funnel money from Edgewater to Rogan and Ehman would support a claim for civil conspiracy to defraud Dexia. A civil conspiracy exists when two or more persons act in concert to accomplish an unlawful purpose or a lawful purpose by unlawful means. The payments to the corporations in the normal course of business would be an action for an unlawful purpose, funneling money to Rogan and Ehman.
If you have a question about breach of fiduciary duty or civil conspiracy, please telephone the member of the firm with whom you regularly work.