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Own multiple businesses with different business partners? A recent Indiana Court of Appeals ruling may impact how you conduct business

Indiana has recognized that shareholders in a closely-held corporation, like partners in a partnership, have a fiduciary duty to each other. 

Under Indiana law, this duty requires that they deal fairly, honestly and openly with each other and the corporation. To date, Indiana has only imposed liability on a fiduciary who breaches his/her fiduciary duty.  However, other states have gone a step further by imposing liability on a non-fiduciary who knowingly assists another in violating his/her fiduciary duty, and a recent Indiana case did not foreclose the possibility that Indiana could follow suit. 

Those involved with a number of different businesses and business partners should understand their fiduciary duties and how the fiduciary duties of others could affect them. In DiMaggio v. Rosario, Victor DiMaggio and his business partner Elias Rosario started Galleria Realty Corporation, a real estate development business in Lake County.  A few years after forming Galleria, Rosario formed Liberty Lake Estates, LLC, a different real estate development business in Porter County with Mark Nebel and William Haak. 

It was Rosario’s involvement with Liberty Lake Estates that formed the basis for DiMaggio’s complaint. In his complaint, DiMaggio alleged that Rosario took business opportunities from Galleria by taking advantage of real estate deals in Porter County that should have been presented to Galleria.  DiMaggio claimed that this action violated Rosario’s fiduciary duty to DiMaggio because a business partner has a fiduciary responsibility to make other partners aware of a business opportunity that in “equity and fairness” belongs to the corporation, and Rosario failed to present the Porter County deals to Galleria. Further, DiMaggio implicated Nebel, Haak, and Liberty Lake Estates (Nebel, Haak, and Liberty Lake Estates are the non-fiduciaries) by alleging that they actively participated with Rosario in violating Rosario’s fiduciary duty to DiMaggio. 

As support for his claim against the non-fiduciaries, DiMaggio cited cases from other states that imposed liability on non-fiduciaries who knowingly participated with a fiduciary in breach of his/her fiduciary duty.  However, DiMaggio did not allege that Nebel or Haak “knowingly” participated with Rosario.  DiMaggio’s failure to allege the “knowing” element ultimately allowed the Indiana Court of Appeals to distinguish these circumstances from the other decisions and “save for another day” whether such a cause of action exists in Indiana.  It remains uncertain whether Indiana will impose liability on a non-fiduciary who knowingly assists another in violating his/her fiduciary duty.  However, it is important to recognize that the possibility exists and that fiduciary duties can be complicated when businesses and business partners are involved. For more information on fiduciary duties, please contact the Bingham Greenebaum Doll Corporate and Transactional Practice Group.



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