Act II Jewelry, LLC, et al v. Wooten et al
1:15-cv-06950
N.D. Ill.Mar 14, 2018Background
- Act II Jewelry (Delaware LLC) wound down its party-plan business; VP of Product Development Elizabeth Wooten worked for Act II from July 2011 to Feb 9, 2015 and formed Adornable-U in Oct. 2014 while still employed.
- Wooten had a $300,000 Loan Agreement involving Kiam Equities Corp. (KEC) and an Incentive Agreement with Act II tied to the wind-down period.
- After Act II’s wind-down, Act II’s assets and inventory were transferred to creditor KEC via an asset foreclosure; KEC then formed K-FIVE LLC to market/license Act II styles.
- Plaintiffs (Act II, Kiam Equities Corp., and K‑FIVE as pled) assert claims including breach of the Loan Agreement, breach of the Incentive Agreement, breach of fiduciary duty, and Illinois Trade Secrets Act violations against Wooten and others.
- Defendants moved to dismiss KEC and K‑FIVE from several counts under Rule 12(b)(6)/Rule 17(a) for failing to plead them as real parties in interest; Wooten moved for summary judgment on the fiduciary duty claim.
- Court: granted dismissal without prejudice for KEC/K‑FIVE on specified counts for failure to plead assignment/successor status; denied Wooten’s summary judgment on fiduciary duty (question of whether she was a key managerial employee/agent creating fiduciary duties remains).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are KEC and K‑FIVE real parties in interest under Rule 17 for Counts II (Loan), III (Incentive), IV (fiduciary), VI (trade secrets)? | Plaintiffs: allegations that Act II’s assets went to KEC and K‑FIVE was formed by KEC suffice at pleading stage. | Defendants: Complaint fails to allege assignment/successor-in-interest or that KEC/K‑FIVE hold the asserted rights. | Dismissed KEC/K‑FIVE without prejudice on those counts; plaintiffs must amend to allege assignment/ownership. |
| May previously dismissed counts (I, V, VII, VIII, XI) be re-asserted in 3d Am. Compl.? | Plaintiffs: re‑pleaded to avoid waiver on appeal. | Defendants: those counts were dismissed with prejudice earlier. | Court reaffirms prior dismissals: those counts dismissed with prejudice. |
| Does Delaware or Illinois law apply to the fiduciary-duty claim? | Plaintiffs: internal affairs doctrine inapplicable because claim isn’t corporate governance; Illinois choice‑of‑law should apply. | Wooten: internal affairs doctrine applies; Delaware law controls. | Court applies internal affairs doctrine (following district trend) and applies Delaware law. |
| Under Delaware law, can a non-member/employee like Wooten owe fiduciary duties to the LLC? | Plaintiffs: Wooten, as key managerial employee/agent, can owe fiduciary duties under agency principles. | Wooten: fiduciary duties arise only for controlling members/managers under LLC default rules. | Court: agency and Delaware authority support fiduciary duties for key managerial personnel/agents; summary judgment denied. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must be plausible to survive Rule 12(b)(6)).
- Rawoof v. Texor Petroleum Co., 521 F.3d 750 (7th Cir. 2008) (distinguishing Rule 17 prudential real‑party requirement from Article III standing).
- CDX Liquidating Trust v. Venrock Assocs., 640 F.3d 209 (7th Cir. 2011) (discussing internal affairs doctrine and choice‑of‑law for fiduciary claims).
- Sci. Accessories Corp. v. Summagraphics Corp., 425 A.2d 957 (Del. 1980) (Delaware recognizes fiduciary duties for key managerial personnel under agency principles).
- Sabath v. Mansfield, 377 N.E.2d 161 (Ill. App. Ct. 1978) (only parties in privity may enforce contract rights).
- Nagy v. Riblet Prod. Corp., 79 F.3d 572 (7th Cir. 1996) (internal affairs doctrine rationale regarding predictability and corporate governance).