Comedy Cottage, Inc. v. Berk

Comedy Cottage, Inc. and Edward Hellenbrand (plaintiffs) owned a comedy club (the club) in Illinois. Hellenbrand hired Jay Berk (defendant) to act as general manager and vice president of the club. Berk managed daily operations. Hellenbrand began leasing the property for the club in 1975, but in 1984, ownership of the property changed, and the club’s lease expired. Hellenbrand directed Berk to negotiate a new lease with the new owner. Without telling Hellenbrand, Berk negotiated a new month-to-month lease that listed Berk as the lessee. Berk subsequently negotiated a one-and-a-half-year lease at Hellenbrand’s direction, but Hellenbrand was upset that the proposal listed Berk as the lessee instead of the club. Hellenbrand raised this issue with Berk and the new owner, and the new owner then decided not to lease to Hellenbrand. The new owner also sent notice to Berk that the month-to-month lease would be terminated. Thereafter, Berk resigned from the club, formed a new corporation—Comedy Company, Inc.—to start his own comedy club, and negotiated and executed a new lease on the property on behalf of the new corporation. Comedy Cottage and Hellenbrand sued Berk, alleging that Berk had breached his fiduciary duty by acquiring a lease on the property. Berk argued, in part, that he had not breached his duty because he had resigned from the club before acquiring the lease. The trial court found that Berk had breached his fiduciary duty. Berk appealed.