## Facts

- Imperial Travel, Ltd. was a closely held travel agency with three equal participants: Bruce Hagshenas held 50% of the stock, and Robert and Virginia Gaylord together held the remaining 50%.
- The owners also served as officers/directors and worked in the business.
- Bruce sued for judicial dissolution, alleging dissension and deadlock between the equal ownership blocs.
- The Gaylords counterclaimed that Bruce breached fiduciary duties by resigning from management and then competing, recruiting Imperial’s employees, and diverting Imperial’s clients and business.
- The trial court entered interim operating restrictions to limit interference with the company and regulate access to records and banking.
- Bruce and his wife resigned as officers and directors and immediately acquired and operated a competing travel agency.
- Bruce hired Imperial’s staff, including sales personnel, to work for the competing business and continued to exercise his 50% voting power.
- The Gaylords claimed Bruce used his equal ownership position to block corporate actions (including a proposed acquisition) while competing against Imperial, harming Imperial’s business and value.
- The trial court found Bruce liable for breach of fiduciary duty but denied monetary damages as too uncertain, ordering forfeiture of Bruce’s shares and costs.
- The Gaylords appealed the denial of damages; Bruce cross-appealed the liability finding, arguing resignation ended any duty not to compete.

## Issues

1. Whether a 50% shareholder in a closely held corporation owes partner-like fiduciary duties to the corporation and co-owners that can restrict unfair competition and diversion of corporate opportunities, even after resigning as an officer/director.
2. Whether the trial court erred by denying monetary damages as speculative where evidence and expert testimony provided a reasonable basis to value the corporation’s loss attributable to the breach.

## Decision

- The appellate court affirmed the finding that Bruce owed fiduciary duties arising from the closely held, quasi-partnership nature of the enterprise and that he breached those duties by competing and diverting employees and business while remaining a 50% shareholder.
- The appellate court reversed the denial of damages, holding the record provided a reasonable basis for computation and damages were not too speculative.
- The case was remanded for determination and award of monetary damages.

## Legal Principles

- Shareholders in a closely held corporation may owe each other and the corporation heightened fiduciary duties comparable to partners, including duties of loyalty, good faith, and fair dealing.
- Fiduciary obligations in a closely held corporation may turn on the parties’ relationship and control position, not solely on formal titles; resignation from officer/director roles does not necessarily end shareholder-based duties.
- A shareholder breaches the duty of loyalty by appropriating corporate opportunities or acting to strip the corporation of employees, customers, or goodwill for a competing venture while still an owner with power to affect corporate action.
- Damages for breach of fiduciary duty are recoverable when the evidence supplies a reasonable basis for valuation; exact precision is not required if the trier of fact can reach a fair approximation.

## Conclusion

The appellate court held that equal owners of a closely held corporation can be bound by partner-like fiduciary duties that prohibit self-interested competition and diversion of corporate resources, and it required an award of monetary damages where the corporation’s loss could be reasonably valued.


Hagshenas v. Gaylord, 557 N.E.2d 316 (Ill. App. Ct. 1990)