Opinion ID: 3004297
Heading Depth: 1
Heading Rank: 4

Heading: Cicero’s Fiduciary Duty Claim

Text: Gross challenges Cicero’s summary judgment victory on liability on the fiduciary duty theory. Though Gross presents several arguments, we need only address one. For we are convinced that the district court improperly concluded as a matter of law that Gross breached a fiduciary duty. Under Illinois law, upon which this theory is based, recovery for a breach of fiduciary duty requires proof of three elements: “[1] a fiduciary duty exists, [2] that the fiduciary duty was breached, and [3] that such breach proximately caused the injury of which the plaintiff complains.” Neade v. Portes, 739 N.E.2d 496, 502 (Ill. 2000). Our trouble with the district court’s ruling lies at the No. 06-4042 25 intersection of the first two elements—just what duty Gross owed the Town of Cicero and how he might have breached it. It has long been established in Illinois that “a public officer occupies a fiduciary relationship to the political entity on whose behalf he serves.” Chi. Park Dist. v. Kenroy, Inc., 402 N.E.2d 181, 186 (Ill. 1980) (citing cases). The most well-known of a public official’s fiduciary duties is that of undivided loyalty to the office and the people whom he serves. See Madlener v. Finley, 538 N.E.2d 520, 522 (Ill. 1989) (citing People v. Savaiano, 359 N.E.2d 475, 480 (Ill. 1976), and City of Chicago ex rel. Cohen v. Keane, 357 N.E.2d 452, 455 (Ill. 1976)); see also Brown v. Kirk, 355 N.E.2d 12, 15 (Ill. 1976). Emanating in part from section 3 of the Illinois Corrupt Practices Act, 50 ILCS 105/3, see Keane, 357 N.E.2d at 455, this duty is “sweeping,” see People v. Scharlau, 565 N.E.2d 1319, 1325 (Ill. 1990), and commands a public official to refrain from self-dealing and conflicts of interest, see Madlener, 538 N.E.2d at 522. The duty of loyalty is not the only fiduciary duty Illinois recognizes for its public officials. Other duties may be prescribed by statute or found in common law. Id.; see also People v. Grever, 856 N.E.2d 378, 387 (Ill. 2006) (“The right to a civil remedy for breach of a statutorily created fiduciary duty is clear.”). For example, the Illinois Supreme Court has held that the Pension Code, 40 ILCS 5/1-109, establishes that a public pension board owes a fiduciary duty to its participants and beneficiaries. Marconi v. Chi. Heights Police Pension Bd., 870 N.E.2d 273, 299 (Ill. 2006). 26 No. 06-4042 In this case, the district court looked to yet an- other statute to define the scope of Gross’s fiduciary duty. And it is the court’s reliance on that statute and its characterization of Gross’s duty with which we disagree. Cicero’s claim was based on Gross’s own admissions in his depositions that he sought to preserve his employment and that of his daughter by knowingly appointing police officers whom he knew the Town President desired but whom he also personally believed were unqualified for the job. Instead of framing that argument in a duty-of-loyalty context, though, the district court drew on the Illinois statutes that grant a municipal BOFPC the authority to appoint police officers and set forth the standards by which such officers must be evaluated and appointed. See Gross, 2006 WL 288262, at  (citing 65 ILCS 5/10-2.1-4 & 5/10-2.1-6). From these statutes, the court gleaned a fiduciary duty owed by BOFPC commissioners to exercise independent judgment in appointing officers. The court concluded that Gross breached that duty by appointing certain officers only upon the orders of Town President Loren-Maltese and not upon his own assessment and approval of those officers’ qualifications. But the BOFPC statutes do not speak in terms of fiduciary duties nor do they state that BOFPC commissioners must ignore the wishes of other public officials, particularly the official who appoints them. Requiring the exercise of good and independent judgment in appointing police officers sounds more akin to imposing a fiduciary duty of care on a public official. But Illinois law provides that public officials are “immune from individual No. 06-4042 27 liability for the performance of discretionary duties in good faith.” Kinzer ex rel. City of Chicago v. City of Chicago, 539 N.E.2d 1216, 1220 (Ill. 1989) (quotation omitted); see also 745 ILCS 10/2-201 (“Except as otherwise provided by Statute, a public employee serving in a position involving the determination of policy or the exercise of discretion is not liable for an injury resulting from his act or omission in determining policy when acting in the exercise of such discretion even though abused.”). Illinois law seems to require more than just a breach of the duty of care to hold a public official liable on a fiduciary duty theory. As a federal court, we are wary of expanding the liability of certain public officials under state law without a firm basis upon which to do so. Neither the parties nor the district court cites any Illinois case establishing a fiduciary duty under the BOFPC statutes, and our research has not uncovered one either. Moreover, the BOFPC statutes do not provide for the liability of BOFPC commissioners; liability must be inferred from the statute, as it has from other Illinois statutes like the Corrupt Practices Act and the Pension Code. But we see little similarity between the BOFPC statutes and those laws under which Illinois courts have found fiduciary duties. The Corrupt Practices Act specifically proscribes self-dealing and conflicts of interest in matters upon which an official exercises his discretion. 50 ILCS 105/3(a). This is the essence of the fiduciary duty of loyalty—“these and kindred statutes reflect the common law doctrine that ‘the faithful performance of official duties is best secured if a governmental officer, like any other person 28 No. 06-4042 holding fiduciary position, is not called upon to make decisions that may advance or injure his individual interest.’ ” Keane, 357 N.E.2d at 455 (quoting Brown, 355 N.E.2d at 15). Furthermore, in other statutes that form the basis for a recognized fiduciary duty, the text itself explicitly creates such a duty. The Pension Code is an example. 40 ILCS 5/1-109 (“A fiduciary with respect to a retirement system or pension fund established under this Code shall discharge his or her duties with respect to the retirement system or pension fund solely in the interest of the participants and beneficiaries . . . .”). The BOFPC statutes lack any analog to common law doctrine and do not spell out a fiduciary duty for BOFPC commissioners. Rather, the BOFPC statutes merely grant appointment authority and explain how it should be exercised. They do not require the commissioners to exercise completely in dependent judgment (though one would hope they would do so) and ignore the desires of those who appoint them. Accordingly, without some Illinois authority or any indication in the text, we cannot conclude that the BOFPC statutes imposed a fiduciary duty on Gross. But that does not end our inquiry of this issue. Gross as BOFPC Chairman is of course still subject to the duty of loyalty that covers all public officials. Cicero has produced evidence, mostly in the form of Gross’s own depositions, that Gross appointed police officers he believed were unqualified because he was worried about his and his daughter’s employment. But whether this conduct could constitute a conflict of interest is unclear No. 06-4042 29 under Illinois law. In People v. Scharlau, the Illinois Supreme Court upheld the convictions of several public officials who negotiated on behalf of a municipality for a consent decree in a Voting Rights Act case, through which the officials sought a provision that would protect their employment with the municipality for several years. The court, examining several good-government statutes, including the Corrupt Practices Act, observed that such “sweeping” statutes reach action taken in exchange for “a promise of employment.” 565 N.E.2d at 1326. Though not a civil case, we find Scharlau instructive on how the Illinois courts view the statutes upon which Gross’s fiduciary duty of loyalty is based. If the evidence shows that Gross and Loren-Maltese agreed upon some quid pro quo arrangement by which Loren-Maltese would continue Gross’s and his daughter’s employ if Gross continued to skirt the BOFPC evaluation process and appoint her hand-picked officers, even though he believed they were unqualified, such action would constitute an exchange for a promise of employment. We think the evidence Cicero produced is sufficient, at least barely, to reach a trier of fact on the question whether such an arrangement actually existed. But Cicero’s evidence is not sufficient to award it an outright victory on liability at the summary judgment stage. There is no direct evidence of a quid pro quo arrangement between Gross and Loren-Maltese, and there is some question as to whether the disputed hires were truly unqualified, because each was ultimately certified as 30 No. 06-4042 a Law Enforcement Officer under Illinois law. Moreover, Gross points out that he believed he was merely being a good employee and following orders. Gross cites to passages in his deposition where he stated that he viewed Loren-Maltese as his “superior” and that he believed she had the legal authority to override his decisions as BOFPC Chairman. Should a trier of fact credit Gross’s view of the evidence, then we would be hard-pressed to conclude that Gross engaged in self-dealing as proscribed by the duty of loyalty, the Corrupt Practices Act, and the court’s interpretation in Scharlau. We refuse to hold that a mere concern for one’s continued employment as a public official constitutes a conflict of interest. If that were the case, we are confident that most politicians and public servants would be found liable at some point in their careers. Acting in a way that might be contrary to one’s own beliefs, but doing so on the orders of those who control one’s employment, is commonplace and surely does not in itself violate any fiduciary duty. A contrary view would wreak havoc on Illinois’s system of public employment—subordinates would have to refuse to act when they subjectively disagreed with the orders of their employers. So, without a more exacting command from the Illinois courts, we decline to interpret Illinois’s fiduciary duty of loyalty to impose liability on those who desire to continue their employment by acting on the commands of their superiors. We will accordingly reverse the grant of summary judgment for Cicero on its fiduciary duty claim and remand to allow the trier of fact to determine whether Gross breached his No. 06-4042 31 fiduciary duty of loyalty to Cicero by engaging in selfdealing, that is, if Cicero continues to pursue this claim on remand. Reversal of Cicero’s judgment on liability also means that the $302,473.79 damages awarded to Cicero cannot stand, so we are not required to address Gross’s argument challenging that award. But since we find some merit to Gross’s argument, and since this damages issue will reappear if, on remand, Cicero wins again on the liability issue, we offer these additional comments. The $302,473.79 awarded by the district court was the entire salary that Gross received during his four-plus years of service in Cicero government. Although this totalsalary forfeiture is possible for breach of fiduciary duty under Illinois law, we think in this case it can be sustained only with more specific findings on the scope and timing of Gross’s alleged quid pro quo arrangement with Loren-Maltese. Illinois law permits a complete forfeiture of any salary paid to a fiduciary during the time when he was breaching his duty to the employer. Levy v. Markal Sales Corp., 643 N.E.2d 1206, 1219 (Ill. App. Ct. 1994). The salary subject to forfeiture is not limited based on the ratio of injurious to legitimate work performed, since an agent who breaches his fiduciary duty has no right to any compensation while acting adverse to the principal’s interests. ABC Trans Nat’l Transport, Inc. v. Aeronautics Forwarders, Inc., 413 N.E.2d 1299, 1314-15 (Ill. App. Ct. 1980). Forfeiture is limited, however, to the “time when the fiduciary was breaching his duty.” Levy, 32 No. 06-4042 643 N.E.2d at 1219; see also ABC Trans Nat’l, 413 N.E.2d at 1315 (“The agent retains compensation rightfully earned before the breach, for specific periods.”). The district court’s total-salary measure of damages assumes that Gross was breaching his duty during his entire time as BOFPC Chairman, but at this stage, the evidence does not support that assumption. It is unknown whether Gross’s alleged quid pro quo arrangement with Loren-Maltese was in place at the outset of Gross’s appointment to the BOFPC, or developed some time into that appointment, perhaps only when the first of Loren-Maltese’s preferred police officer candidates came up for consideration. These details on the timing of Gross’s unlawful agreement with Loren-Maltese should be developed in the record as an adjunct to the question of whether such an agreement even existed. If Cicero’s evidence is sufficient to show that Gross actually agreed to abandon his BOFPC duties by appointing Loren-Maltese’s handpicked officers in exchange for a promise of continued employment, the evidence should also allow for a reasonable determination of when during Gross’s tenure this agreement was in place. From there, the proportion of Gross’s total $302,473.79 earnings subject to forfeiture for breach of fiduciary duty may be assessed. See Vendo Co. v. Stoner, 321 N.E.2d 1, 14 (Ill. 1974) (considering three-year, five-month period when fiduciary breached duty by financing competitor’s operations); Levy, 643 N.E.2d at 1219 (upholding forfeiture of corporate directors’ salary received while they were running a comNo. 06-4042 33 petitor corporation “and thus breaching their fiduciary duty”); ABC Trans Nat’l, 413 N.E.2d at 1315 (limiting salary forfeiture to four-month period when corporate officers breached their duty by conspiring with employees to move to a competitor).