The Illinois Northern District recently examined the contours of Illinois fiduciary duty, account stated, and joint venture breach claims in Flair Airlines v. Gregor, LLC, 2018 WL 4404649 (N.D.Ill. 2018)(slip copy).
The plaintiff airline company hired the defendants to rebrand and create a technological infrastructure for the airline including a website and online reservation system. While the defendants/counter-plaintiffs prepared a written agreement that formalized the terms of the venture (which called for future multi-year profit-sharing agreements, among other things), the airline never signed the agreement. This was done, according to counter-plaintiffs, for the airline to buy time to form a competing business in Canada and to leverage the fruits of defendants’ work.
The parties’ business relationship eventually crumbled and the airline sued defendants for unfair competition and deceptive trade practices. (The thrust of the complaint was that defendants were wrongfully using plaintiff’s domain names and websites, among other allegations).
Defendants counter-sued for account stated, breach of fiduciary duty, and breach of the never-signed joint venture agreement. The airline moved to dismiss all counterclaims.
The Court first denied the plaintiff’s motion to dismiss defendants’ account stated claims.
In Illinois an account stated is a form of proving damages on a pre-existing obligation. It is an alternative legal theory to one sounding in breach of contract for a plaintiff to recover the same damages asserted in a contract action.
An account stated determines the amount owed between parties who have previously conducted monetary transactions with each other.
Where a plaintiff renders a statement of account to a defendant who retains the statement beyond a reasonable amount of time without objection, the law views this as a tacit acknowledgement of the statement’s validity.
However, an account stated “cannot be made the instrument to create an original liability; it merely determines the amount of the debt where liability previously existed.”
The Court found that the counter-plaintiffs’ allegations that they regularly sent invoices to the plaintiff who then retained them without objection, were enough to state a colorable account stated claim.
The court also sustained the counter-plaintiffs’ breach of fiduciary duty claim against the airline.
Under Illinois law, a breach of fiduciary duty plaintiff must allege (1) a fiduciary relationship, (2) a breach of the fiduciary duty, and (3) injury resulting from the breach. Fiduciary duties exist as a matter of law in a joint venture relationship.
The court found the counter-plaintiffs’ allegations that they formed a joint venture with the airline to expand its business and build the airline’s operations and reservations systems and the airline’s abandonment of the venture was enough to state a viable fiduciary duty claim under Federal notice pleading standards.
On the counter-plaintiffs’ breach of joint venture (JV) claim, the Court noted that under Illinois law, a JV exists where there is (1) an express or implied agreement to carry on an enterprise, (2) a manifestation of intent by the parties to be associated as joint venturers; (3) a joint interest as shown by the parties’ contribution of property, financial resources, effort, skill or knowledge; (4) a degree of joint ownership over the enterprise including the mutual right to exercise control over it; and (5) the joint sharing of profits and losses.
The court rejected the plaintiffs’ argument that the joint venture claim was defeated by the Statute of Frauds. In Illinois, a contract that cannot be performed within the space of one year must be in writing in order to be enforceable. The plaintiff argued that since part of the alleged JV contemplated future three-year contracts between the airline and the defendants’ company, a writing was required.
The Court disagreed. It found the unsigned JV provided evidence of the key terms of the parties’ business arrangement and that even so, a sender’s name on an email could satisfy the signature requirement of the Statute of Frauds.
The court ultimately dismissed the counter-plaintiffs’ JV claim though since the counterclaim didn’t properly identify the JV members. The Court granted the counter-plaintiffs’ 14 days leave to replead the JV count.
Where a plaintiff sends a statement of account to another who retains the statement beyond a reasonable time without objection, this can establish an account stated.
A joint venture doesn’t have to be in writing and can give rise to breach of fiduciary duty claim.
On the Statute of Frauds question, this case solidifies the dual propositions that (1) the formal execution of a contract isn’t necessary if a court can piece together the key contract terms through various writings, and (2) a properly authenticated email can serve as proxy for signature requirement of Statute of Frauds.