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Fiduciary Duty Also Found: On the fiduciary duty claim, the panel acknowledged that generally
corporate officers only owe a fiduciary duty to the corporation and its shareholders.
However, citing Paul H. Schwendener, Inc. v. Jupiter Elec. Co., 358 Ill. App. 3d 65
(2005), it held that under certain circumstances an officer may owe a fiduciary duty to
the corporation’s creditors. “Specifically, once a corporation becomes insolvent, an
officer’s fiduciary duty extends to the creditors of the corporation because, from the
moment insolvency arises, the corporation’s assets are deemed to be held in trust for
the benefit of its creditors,” the court said.

Although not necessary to its decision, the panel also approvingly cited Delaware law under which a
fiduciary duty to creditors may be found in cases of “fraud . . . or a violation of a statute.”

No Cause of Action for Discovery Violation: Workforce was not a complete victory for the
plaintiff, however. In the trial court, plaintiff had unsuccessfully asserted claims arising out of defendants’
alleged failure to produce all documents in their possession in a previous lawsuit. It claimed the failure to
produce gave rise to civil actions for breach of a “duty of disclosure and candor” and for fraudulent
concealment.

Distinguishing cases arising under partnership law and cases where the failure to disclose was held
to toll the statute of limitations on a claim for which there was an independent basis, the panel said it
found no support “for an independent cause of action arising out of an alleged breach
of a duty of disclosure and candor.”

With respect to the claim for fraudulent concealment, the court recognized that
fraud may consist of “the intentional omission or concealment of a material fact under
circumstances creating an opportunity to speak,” citing Hassan v. Yusuf, 408 Ill. App.
3d 327 (2011). However, to establish fraud for failure to speak a plaintiff must establish
the existence of a “special or fiduciary relationship, which would raise a duty to speak,”
the court said. Because plaintiff had failed to allege a fiduciary relation in the context of the alleged
discovery violations, the panel said the action for fraud was properly dismissed.

Case’s Legacy Unclear: Workforce’s rejection of an independent cause of action for discovery
violations is precedential and important in rejecting doctrines that otherwise would have had broad and ill-
defined limitations. This part of the decision is unlikely to draw much criticism. The
decision’s holding on the fiduciary duty to creditors is well supported by prior law, though
that precedent is often overlooked, a phenomenon which Workforce will make more
difficult.

What may expose Workforce to the greatest criticism is its treatment of the mere
continuation doctrine, and that criticism may stem in part from difficulty in knowing
precisely what the court held. Defendants argued that the common ownership in this
complex fact situation was less than one-third, while plaintiff alleged it was much
greater. The panel did not resolve that factual dispute, but held that the dismissal of the
pleading as insufficient on its face was improper. What Workforce means as a matter of substantive law
thus remains subject to debate and future interpretation.

John\SharpThinking\#75.doc

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