TABFG is a limited liability corporation. It brought a lawsuit against Richard Pfeil, claiming that among other things that Pfeil had tortuously interfered with a contract. After a bench trial, the district judge entered judgment in favor of TABFG in the amount of $957,659.68, comprised of a principal of $674,121.87 plus prejudgment interest of $279,530.36 and costs of $4,007.45. Pfeil appealed that judgment.
In April 2003, a joint venture was formed between the limited liability companies TABFG and NT Prop Trading (NT Prop). The purpose of the joint venture was trading securities for financial gain.
TABFG was made up of three individual members and managers whose responsibilities were all of the securities trading for the joint venture. NT Prop was tasked with funding the joint venture and included two members who were also limited liability corporations. The sole member, manager and owner of one of the limited liability corporations of NT Prop were Pfeil Commodity Fund, in which Richard Pfeil was known as the “money man” for the joint venture.
Pfeil was the defendant in this case. NT Prop was managed by two individuals, one of whom was Pfeil’s attorney and another individual.
Under the terms of the joint venture agreement, NT Prop would provide the money to fund the trading by TABFG, which included an initial amount of $2 million. There were later infusions of additional funds amounting to $2.5 million.
At first, the arrangement worked well. NT Prop provided the initial $2 million in start-up money, which came from Pfeil Commodities. The traders proved adept at their craft, earning profits of $3.4 million.
A problem came up, threatening the joint venture to continue its mission. Before forming TABFG, two of the TABFG traders were also employees of a limited liability partnership, which engaged in the trading of equity, futures and derivative products and securities. In that employment, the two traders were signatories to an employment contract that had restricted covenant language that limited their ability to compete with their former employer when they left their jobs. The parties to the joint venture agreement here were aware of those limitations for these two traders and in fact, the joint venture provided for payment of attorneys’ fees and other costs necessary to escape the limitations of that employment contract.
Toward ending any dispute there, the two traders filed a lawsuit against the limited liability partnership (SIG) seeking a declaratory judgment to invalidate the restrictive covenants. In its response, SIG added TABFG and NT Prop to the lawsuit as additional counterclaim defendants seeking disgorgement of all profits, thus creating a problem among the parties to the joint venture.
To make matters worse, on Sept. 16, 2003, SIG obtained an injunction in a Pennsylvania district court enjoining the traders for nine months after their departure from SIG from trading any security that they had traded within the last three months of their employment with SIG. It also enjoined them from associating with each other on a securities trading business for nine months. That prevented these traders from working together to trade on behalf of TABFG.
This injunction effectively ended the joint venture agreement. The terms of the joint venture agreement required disbursement funds as of Oct. 2, 2003. The district court found that the joint venture agreement provided for an even split of profits between TABFG and NT Prop, less expenses and payments.
Discussions and letters were exchanged between the parties as to the amounts due from NT Prop to TABFG under the agreement. NT Prop created spreadsheets in an effort to detail the amounts owed. However, the parties did not agree as to the final accounting.TABFG pleaded with Pfeil to distribute what was owed to TABFG so it could have the money available to mount a defense in the lawsuit brought by SIG.
On Jan. 6, 2004, Pfeil caused NT Prop to distribute $360,000 to TABFG; $533,023 to NT Financial, one of NT Prop’s members; and $2,742,182 to Pfeil Commodities. Pfeil solely owned Pfeil Commodities, and the money eventually went to him personally for his own personal use. In September 2004, NT Prop was involuntarily dissolved by the Illinois Secretary of State.
TABFG filed a lawsuit against Pfeil alleging that Pfeil tortiously interfered with the contractual obligations of NT Prop and in its joint venture agreement under which the distribution of profits was supposed to be evenly split between TABFG and NT Prop.
Under Illinois law, a claim of four tortious interference requires proof of a legally enforceable contract of which the defendant had knowledge, and the defendant’s intentional interference inducing of breach by a party to the contract, resulting in damages. Stafford v. Puro, 63 F.3d 1436, 1441 (7th Cir. 1995).
Essentially what was asserted in the lawsuit by TABFG was that when Pfeil, who was not an officer, director or manager of NT Prop, engineered a distribution of the bulk joint venture funds to himself, he tortiously caused NT Props to breach its contractual obligations under the joint venture agreement to TABFG on that date. After the bench trial, the district court judge agreed with TABFG and awarded a judgment to TABFG and against Pfeil. The court considered the credibility of all of the witnesses, including Pfeil.
On appeal, Pfeil raised two challenges to the trial court’s decision. It first asserted that the claim of tortious interference is barred by the statute of limitations. Second, it was asserted that Pfeil’s distribution of funds was protected by privilege; therefore, he could not be held liable for that distribution.
The court of appeals first took the argument of the statute of limitations for a claim of tortious interference. The court reiterated the fact that the statute of limitations is five years. Pfeil argued that the joint venture agreement was terminated when the Pennsylvania district court entered the injunction against the two traders. Pfeil’s arguments and the affirmative defense that he raised previously were not persuasive to the panel.
Next the Pfeil argument was that distribution of the funds to him was privileged; therefore, he cannot be held liable for that action. The Illinois Supreme Court has recognized a privilege in tortious interference cases in which the interest the defendant was acting to protect is one in which the law deems to be of equal or greater value than the plaintiff’s contractual rights. HPI Health Care v. Mt. Vernon Hosp., 545 N.E.2d 672, 677 (Ill. 1989).
Illinois has granted a conditional privilege to managers or corporate officers that protect them from personal liability for their decisions made on behalf of the corporation. In this case, Pfeil’s argument of privilege was problematic. He was not a manager, director or officer of NT Prop and was not authorized to act on NT Prop’s behalf. The district court held that Pfeil’s act in distributing the money to himself was a personal one, not a corporate one at all, and that it was done solely for his own personal benefit.
Finally, the appeals panel found that the district court established that Pfeil acted solely for his own personal benefit and that the distribution was not in the interest of NT Prop; therefore, Pfeil was not shielded from liability by privilege. The district court’s judgment was affirmed.
Kreisman Law Offices has been handling partnership disputes, commercial litigation, breach of contract cases and corporate law matters for individuals and businesses for more than 38 years in and around Chicago, Cook County and its surrounding areas, including River Forest, Park Forest, Tinley Park, Westchester, Wheeling, Vernon Hills, Wilmette, Winnetka, Burbank, Berkeley, Berwyn, Blue Island, Hanover Park, Harvey, Hillside, Hoffman Estates and LaGrange, Ill.
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