Does a law firm have a duty in tort to squeal on management to the board of directors?

Not in Illinois, the Seventh Circuit ruled last week. Peterson v. Winston & Strawn, LLP, No. 12-3512, slip op. at 4-5 (7th Cir. Sept. 6, 2013) (affirming dismissal of malpractice complaint).

The panel also cited its doubts that the board would have cared:

One of the four directors lived in Hong Kong and the other three in the Bahamas. Nothing in the complaint suggests that any of the four ever exercised any responsibility over the Funds other than to delegate all powers and duties to [fund founder Gregory] Bell. The Trustee might have bolstered his claim by conducting an investigation into the four directors' careers and learning how they had responded if or when other firms with which they were affiliated had encountered troubled investment or balky borrowers (Petters’s ventures fit both descriptions). But the Trustee conceded oral argument that he had not conducted any pre-filing investigation, and he did not ask for discovery in order to learn whether the directors were independent of Bell in any realistic sense.

Id. at 6.