Choice of Law

Willful-and-Deliberate Standard Applies to Court-Appointed Receivers

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Nutmeg Group, LLC (“Nutmeg”) was the investment advisor and sole general partner for several investment funds.  Each fund was either an Illinois or Minnesota limited partnership.  In 2009, the SEC brought an enforcement action against Nutmeg and others for misappropriation of client assets and failure to maintain proper records.  The Northern District of Illinois appointed Leslie Weiss (“Weiss”) as receiver for Nutmeg.  Nutmeg’s former manager and limited partners from certain funds sued her and others for breach of fiduciary duties.  Weiss moved successfully to dismiss some claims, and then won summary judgment on the rest.

The Seventh Circuit affirmed, applying Illinois law.  It explained that because Illinois and Minnesota had both adopted the Uniform Limited Partnership Act and the plaintiffs had not identified any conflicts in those states’ interpretation thereof, “we would reach the same conclusions under Minnesota law.”  Id. at 1001.  However, the Seventh Circuit found no Illinois case addressing the standard of care applicable to a court-appointed receiver, and so had to discern what standard the Illinois Supreme Court would adopt if presented with the issue.  In so doing, the Court chose to apply the “willful and deliberate” standard.  It reasoned that, “if a receiver is burdened with having to defend against suits by litigants disappointed by his actions on the court’s behalf, his work for the court will be impeded.”  Id. at 1003.  This standard reflects “the reality that receivers are often appointed to take charge of entities with which they have had no prior involvement: imposing personal liability for mistakes in business judgment could discourage competent individuals from acting as receivers.”  Id. at 1003-1004.  Applying that standard, the Seventh Circuit held that “our ultimate conclusion—that no reasonable jury could find that Weiss engaged in a willful, deliberate, or even grossly negligent breach of a fiduciary duty—applies with equal force to the totality of the plaintiffs’ claims on appeal.”  Id. at 1007.  It highlighted at various points that, “the plaintiffs […] did not bring forth evidence to show that a jury could find that those decisions reflected a willful, deliberate, or grossly negligent breach of her fiduciary duties,” and that “a poor business decision falls well short of demonstrating either a willful and deliberate or even a grossly negligent breach.”  Id. at 1006.

Alonso v. Weiss, 932 F.3d 995 (7th Cir. 2019)

(This is for informational purposes and is not legal advice.)

Recent Illinois Case: Elling v. Hauck

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The Court applies Illinois choice of law and concludes that Wisconsin law governs the third party malpractice claim. The claim is dismissed because Wisconsin requires privity.

Elling v. Hauck, 2015 WL 5401653

(This is for informational purposes and is not legal advice.)