What is an example of how the fiduciary shield doctrine applies?
It often comes up when a corporation and one or more of its officers are being sued. For example, suppose a Wisconsin corporation was hired to construct a building in Illinois and a lawsuit is filed in Illinois arising out of the construction project. The corporation would certainly be subject to personal jurisdiction in Illinois, but what about the officers — Wisconsin residents — who negotiated the contract and entered into the deal on behalf of their employer?
Entering into a contract for a construction project will often involve lengthy negotiations and will require the builder’s employees to travel to Illinois. But is this enough contact with Illinois to render them subject to being sued here in their individual capacities?
In a recent decision, with similar facts, the court dismissed two officers from a suit under the fiduciary shield doctrine. It found that one officer, who signed a construction contract and participated in telephonic meetings about the project — but who never traveled to Illinois — was not subject to jurisdiction here. Likewise, another officer, who did come to Illinois to attend progress meetings, but never for personal reasons, was also not subject to personal jurisdiction.
Are there circumstances under which courts are less likely to apply the fiduciary shield doctrine?
The doctrine is discretionary, so a court can decide whether to apply it based on the circumstances presented.
Courts often will refuse to apply the fiduciary shield doctrine to someone who is a high-ranking company officer with a direct financial stake in the company. A direct financial stake typically doesn’t mean an officer who holds shares as part of a retirement plan. Instead, courts are generally concerned with substantial shareholders, for example, those owning 20 percent or more of the company. But, monetary incentives aren’t the only thing courts consider.
Although less common, personal motives — spite, vindictiveness or maliciousness — have, at times, led courts away from applying the fiduciary shield doctrine. Further, where there are allegations that a corporate entity was merely a ‘sham’ utilized for an individual defendant’s personal benefit, the fiduciary shield doctrine is less likely to apply.
These exceptions notwithstanding, utilizing the fiduciary shield doctrine at the outset of a case can be a powerful tool in extracting nonresident agents from lawsuits during their initial stages.
Andrew D. Campbell is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or [email protected].
