## Facts

- Edward Hellenbrand operated a comedy club at 6350 N. River Road in Rosemont, Illinois, later incorporating the business as Comedy Cottage, Inc.
- Jay Berk was hired as general manager, later became vice president, and received 10% of the corporation’s shares; Hellenbrand moved out of state and left Berk to run daily operations.
- When the premises changed ownership and the lease expired, Hellenbrand instructed Berk to negotiate a renewed lease for the business.
- Berk obtained a written month-to-month lease naming himself, not the corporation, as lessee and did not disclose this to Hellenbrand.
- Berk later negotiated a longer-term lease, again in his own name; after Hellenbrand learned of the arrangement and objected, the landlord declined to lease to Hellenbrand and terminated the month-to-month lease held in Berk’s name.
- Berk resigned, formed a new corporation, obtained a lease for the same premises, and opened a competing comedy club there.
- Plaintiffs sued for injunctive relief, alleging breach of fiduciary duty and usurpation of a corporate opportunity; the trial court enjoined Berk from interfering with plaintiffs’ possession of the premises.

## Issues

1. Whether a corporate officer/director breached the fiduciary duty of loyalty by secretly taking a lease opportunity in his own name and then operating a competing business on the same premises.
2. Whether the officer’s resignation before executing a later lease for his new company eliminated liability for breach based on conduct initiated while he was a fiduciary.
3. Whether the landlord’s refusal to lease to the plaintiff extinguished the corporation’s lease-related business opportunity, permitting the former officer to take the lease for himself.

## Decision

- The appellate court affirmed the injunction.
- Berk breached his fiduciary duty of loyalty by using his corporate role to secure the premises lease for himself (and later for his new corporation) and by establishing a competing club there.
- Berk’s resignation did not cure or negate the breach because the course of conduct began while he was an officer/manager and relied on position-derived information and relationships.
- The landlord’s refusal to lease to Hellenbrand did not defeat the corporate-opportunity claim where Berk’s conduct contributed to the breakdown in the leasing relationship.

## Legal Principles

- Corporate officers and directors owe a duty of undivided loyalty and must not place personal interests in conflict with the corporation’s interests.
- A fiduciary may not usurp a corporate opportunity for personal benefit when the opportunity arises from corporate business and is pursued through authority entrusted by the corporation (including renewal/continuation of a premises lease essential to the business).
- Secret self-dealing and failure to disclose material conflicts in transactions undertaken on the corporation’s behalf constitute a breach of fiduciary duty.
- Resignation does not immunize a fiduciary from liability for diverting a corporate opportunity where the diversion was initiated during the fiduciary relationship or is the product of information and relationships obtained through that role.
- Injunctive relief may be appropriate to prevent interference with corporate possession where the breach involves diversion of a unique business opportunity tied to specific premises and a competing operation.

## Conclusion

The court held that a corporate officer who was entrusted to renew a key lease breached the duty of loyalty by secretly taking the lease in his own name and then opening a competing business on the premises; neither resignation nor a landlord’s refusal to deal with the owner barred injunctive relief.


Comedy Cottage, Inc. v. Berk, 145 Ill. App. 3d 355, 495 N.E.2d 1006 (Ill. App. Ct. 1st Dist. 1986)