Upon first thought, a conflict of interest may seem impermissible. That is not the case under Illinois law. Indeed, conflicts of interest are permissible or may be waived, so long as certain guidelines are followed.
As an example, a beneficiary of an estate or trust can also be an executor or trustee (collectively referred to hereinafter as "fiduciary"). The fiduciary will not be held liable for his or her conduct unless he or she has acted in bad faith or abused his or her discretion. Despite apparent divided loyalty, there is no presumption against the fiduciary. The burden of proof with respect to alleged conflicts is on the party challenging the fiduciary’s conduct.
A leading case in Illinois on this issue involved George ("Papa Bear") Halas, Sr., former owner of the Chicago Bears. His son, George ("Mugsy") Halas, Jr., predeceased Papa Bear, leaving a will naming Papa Bear as executor of his estate and trustee of his children’s trusts. Before the administration of Mugsy’s estate was concluded, Papa Bear died. A successor executor of Mugsy’s estate filed a complaint against the estate of Papa Bear alleging that Papa Bear breached his fiduciary duties while acting as executor of his son’s estate by failing to protect the interests of the beneficiaries during a reorganization of the Bears and failing to give notice of the reorganization.
In his testamentary documents, Mugsy gave his father the authority to invest and retain the Bears' stock and absolved him of any liability for diminution in value of the stock. He also authorized Papa Bear to take any such action without court approval and "subject to his or her duty to act fairly, his or her actions in these respects shall be binding and conclusive upon all of the beneficiaries hereunder as though no such relationship or possible conflict of interest existed."
The Appellate Court held that Papa Bear did not act in bad faith or abuse his discretion during the reorganization; this holding was consistent with the trial court’s finding that Papa Bear’s participation in the reorganization was motivated by "benevolent intentions." The Appellate Court held that Mugsy’s will expressly waived the duty of undivided loyalty. More important, the Appellate Court also held that even absent the express waiver, it was clear that Mugsy authorized his father to occupy conflicting positions since he appointed him a fiduciary, a position that Mugsy had to realize might come into conflict with his father's desires as a shareholder of the Bears.
In will cases subsequent to the Halas case, even where there has been no express waiver of any conflict of interest in the will, appointment of a person to conflicting positions – fiduciary and beneficiary – is evidence that the conflict of interest was approved.
Conflicts of interest in business law are treated differently. A corporate transaction which results in some personal benefit to an officer or director is presumptively fair to the corporation, if the transaction is approved by a majority of disinterested directors or by shareholders acting with full knowledge of material facts. Absent such approval by disinterested directors or shareholders, in a challenge to the validity of such a transaction, the burden of proof of legal conduct, i. e., the fairness of the transaction, is on the director or officer asserting validity of the transaction.
Please do not hesitate to contact us if you have any questions about conflicts of interest.
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