The Board Made a Wrong Decision – Can (Should) it be Held Liable?

The board of directors made the decision to acquire a company for $100 million.  The negotiations and the due diligence process were difficult, but the board finally approved the acquisition and the transaction closed.  After closing, the acquirer determined that the value of the acquired company’s assets were greatly overstated and the acquiring company took a loss on its books.  The shareholders of the acquiring company have met to determine whether to file litigation against the directors.

In Illinois, courts have ruled that the “business judgment rules acts to shield directors who have been diligent and careful in performing their duties from liability for honest errors or mistakes of judgment”.  Absent “bad faith, fraud, illegality or gross overreaching, the courts are not at liberty to interfere with the exercise of business judgment by corporate directors”.  Thus, just because a board made the “wrong” business decision, does not mean that the directors are liable to the shareholders.

While the courts are reluctant to make business judgments for companies, this does not always prevent shareholders from “second guessing” decisions of the board.  Illinois law provides that a corporation may indemnify its directors and officers from any liability if such director or officer “acted in good faith and in a manner he or she believed to be in, or not opposed to, the best interests of the corporation”.  Since the law is permissive, in order for a corporation to attract quality persons to serve as an officer or director, it may wish to agree to indemnify such person in such situations.  It is important from the corporation’s perspective to draft such an agreement, in a manner that, while protecting the “well-intended” officer or director, also protects the company.  If you have any questions about directors’ and officers’ liability to the corporation, or would like to discuss your company’s legal concerns, please feel free to contact the business lawyers at Levin Ginsburg.

For more information, please contact:

Morris R. Saunders at: (312) 368-0100 or msaunders@lgattorneys.com

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When Silence Is Not Golden, A Cautionary Tale For Brokers

Under the “Carmack Amendment,” a motor carrier (i.e. an entity providing transportation of cargo) is generally strictly liable for damages incurred during the interstate shipment of goods.  Alternatively, a broker (i.e. an entity who arranges for the transportation of cargo) is ordinarily not liable under the Carmack Amendment so long as it does not hold itself out to the public to be a motor carrier. 

On April 19, 2019, the United States Court of Appeals for the Third Circuit issued an opinion in Tryg Insurance et al. v. C.H. Robinson Worldwide, Inc. that should serve as a cautionary warning to brokers.  Specifically, the Third Circuit found C.H. Robinson (a well-known broker), to be liable under the Carmack Amendment because it did not make it clear to the shipper that it was only providing brokerage services.  

In Tryg, Tom’s Confectionary Group (“TCG”) contracted with C.H. Robinson (“CHR”) to transport a shipment of chocolate from Pennsylvania to New Jersey.  CHR brokered the load to a motor carrier to transport the chocolate.  The chocolate melted during transit and TCG filed a claim under the Carmack Amendment against CHR.  CHR denied liability and contended that it was a broker and that liability for the damage to the cargo did not extend to brokers under the Carmack Amendment.  TCG argued that CHR was a “motor carrier” under the Carmack Amendment and the trial court agreed. 

In affirming the trial court’s decision, the Third Circuit held that “if a party has accepted responsibility for transporting a shipment, it is a carrier.”  In coming to the conclusion that CHR was a motor carrier, the Third Circuit noted that CHR never made it clear to TCG that it was acting only as a broker.  Thus, CHR’s silence in failing to notify TCG of its role in the transportation of the chocolate was not golden.

As shippers increasingly look for additional avenues of recovery on Carmack claims, brokers must be more careful not to assume the liability of a motor carrier.  Brokers should affirmatively state to shippers the scope of their services (i.e. that they are merely agreeing to locate and hire a third party to transport goods) to avoid the same situation that occurred in Tryg

For more information regarding cargo litigation, please contact:

Roenan Patt at: (312) 368-0100 or rpatt@lgattorneys.com

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An Employer Can Be Liable for Accessing an Employee’s Personal Email Even if the Employee Engaged in Misconduct

Over the last several years, communication via email and text has become commonplace in the workplace. Oftentimes, employees use one device for both personal and work-related communication regardless of whether that device is employee-owned or employer-provided. There is no doubt that employers may have legitimate business reasons for monitoring employee communications. For example, an employee may leave the company and the employer is concerned that she has taken confidential information or illegally solicited clients. Employers feel entitled to review data stored on employer-provided, particularly where employees are instructed that the company owns the devices and has the right to monitor the data.  As a general rule, the law supports employers here.  An employer’s zeal to snoop, however, may subject it to both civil and criminal penalties under both federal and state statutes.

The Electronic Communication Privacy Act (ECPA) and the Stored Communications Act (SCA) both govern an employer’s ability to review electronic communications. The ECPA prohibits the interception of electronic communications, and the term “interception” as used in the ECPA has been interpreted narrowly. The SCA makes it illegal to “access without authorization a facility through which electronic communication service is provided,” making it illegal to obtain access to certain communications in electronic storage. With regard to an employer’s review of employee emails sent through web-based email accounts like Gmail or Hotmail, the most frequent scenario is where the former employer is able to access the former employee’s web-based email account because the employee saved his username and password on a device provided by the employer. In these cases, courts have typically sided with the former employee and have been reluctant to punish the former employee for failing to take appropriate steps to secure their own personal information and allegedly private communications.  The former employee’s own negligence in securing personal data is not a defense for the employer.

Bottom line – an employer should seek advice before accessing an employee’s personal email account without authorization even though it has the ability to do so.

For more information on this topic please contact:

Howard Teplinsky at:

312-368-0100 or hteplinsky@lgattorneys.com.

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