Lqd Business Finance, LLC v. Akf, Inc.

United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued January 29, 2025
Decided March 17, 2025
Before
MICHAEL B. BRENNAN, Circuit Judge
MICHAEL Y. SCUDDER, Circuit Judge
AMY J. ST. EVE, Circuit Judge
No. 24-1071
LQD BUSINESS FINANCE, LLC,
Plaintiff-Appellee,
v.
AKF, INC., et al.,
Defendants-Appellants.
Appeal from the United States District
Court for the Northern District of
Illinois, Eastern Division.
No. 19 C 4416
Matthew F. Kennelly,
Judge.
O R D E R
AKF, Inc. (“AKF”) appeals the district court’s imposition of a constructive trust
on a $78,000 commission it currently holds. It does so despite repeated promises from
its CEO, Alex Shvarts, to pay the commission to its rightful owner. Confused by these
conflicting signals, we pressed the litigants at oral argument on why the case was before
our court. Counsel for LQD Business Finance, LLC (“LQD”) explained that the parties
do not have “a lot of love lost.” Indeed.
Seeing little merit in AKF’s contentions, we affirm the judgment of the district
court.
NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1

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I.
LQD and AKF are competitors in the alternative business financing industry.
Business financing firms receive applications from small companies seeking funding,
vet these companies’ financial statements and plans, and decide whether to lend the
requested capital. When a business financing firm elects to fund an application, also
referred to as a “deal,” the funding firm often will pay a commission to the person or
entity responsible for referring the application. If a firm declines to fund an application,
however, it may seek to “remonetize” the rejected deal by referring it to other firms and
receiving a commission should one of those other firms fund the deal.
In the fall of 2017, Azizuddin Rose, a business finance consultant at LQD, began
to stretch the limits of his authority to send deals out for remonetization. Over an
approximately 18-month period, he referred more than 60 deals to AKF, including some
that LQD had not yet declined. And in 2018, when AKF agreed to fund a deal LQD had
rejected, Rose diverted the resulting commission to himself, without the knowledge or
permission of LQD.
Rose’s malfeasance escalated the following year. After receiving an application
for additional funding from one of LQD’s existing customers, Rose bypassed his
employer’s systems entirely and referred the application to AKF. When AKF elected to
fund the deal, Rose again sought to personally collect the resulting $78,000 commission.
But LQD learned of Rose’s actions before he could do so. It fired him and shut off his
access to company systems. LQD’s CEO, George Souri, also emailed Shvarts to inform
AKF that Rose had acted without authorization. Souri reminded Shvarts that all
commissions resulting from LQD referrals should route to LQD. Shvarts responded that
any dispute was between LQD and Rose and refused to pay the commission to LQD
until AKF received a release and indemnification agreement.
LQD declined to provide the demanded release, suspecting that AKF had
colluded with Rose. Shortly thereafter, LQD filed suit against Rose and AKF, alleging
violations of the federal Defend Trade Secrets Act (“DTSA”), the Illinois Trade Secrets
Act (“ITSA”), and state tort law. Rose then counterclaimed against LQD, alleging
tortious interference with contract.
The district court entered summary judgment for AKF on LQD’s trade secrets
claims, reasoning that the funding applications Rose sent to AKF did not contain trade
secrets. And while the files LQD created to assess the strength of applicants’ businesses
could contain trade secrets, LQD had not offered evidence that Rose transmitted those

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No. 24-1071 Page 3
files to AKF. LQD had shown only that Rose downloaded them onto his personal
computer.
Rose’s counterclaim, as well as LQD’s breach of fiduciary duty claim against
Rose and its tortious inducement of breach of fiduciary duty claim against AKF,
proceeded to a combined bench and jury trial.* AKF’s defense remained consistent
throughout the proceedings—it had not known that Rose was acting without
authorization and any dispute was between LQD and Rose. When asked why AKF had
yet to pay out the $78,000 commission, for example, Shvarts testified:
[T]his dispute hit me out of nowhere after we received an email from Mr.
Souri claiming that those funds were Mr. Souri’s and LQD funds. And we
decided to hold on to the commission until we knew who does this
commission belong to. So we held the commission. We still hold the
commission until somebody tells us whose money this really is.
Shvarts later reiterated his stance that AKF was an innocent third-party, waiting on a
determination from the court as to the proper recipient of the commission:
Four years of my life, I’m in this lawsuit offering just tell me where do you
want—whose money is it? You figure out—because the problem is
between the two of you. This has nothing to do with me.
The jury took Shvarts at his word. In its advisory verdict, the jury found that
Rose had breached his fiduciary duty to LQD by personally accepting commissions
from AKF. But it rejected LQD’s tortious inducement claim against AKF. When allotting
damages to LQD, the jury wrote that Rose ought to repay LQD the commission it
received from AKF in 2018 and that AKF ought to pay LQD the $78,000 commission it
had yet to disburse.
* The district court determined that LQD’s claims against Rose and AKF were
predominately equitable, and LQD was therefore not entitled to a jury trial. But because
Rose’s counterclaim against LQD was legal, the court had the jury hear the entire case.
The jury’s verdict on Rose’s counterclaim and any common issues was binding. For all
other questions, the jury delivered only an advisory verdict.

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The district court gave effect to the jury’s advisory verdict in its post-trial
findings of fact and conclusions of law. While the court found that LQD had failed to
prove tortious inducement of a breach of fiduciary duty by AKF, it imposed a
constructive trust over the $78,000 commission and directed AKF to transfer it to LQD.
AKF moved to amend the judgment, objecting to the imposition of the
constructive trust. It also petitioned the court for attorney’s fees under the DTSA and
ITSA, arguing that LQD had filed trade secrets claims against it in bad faith. The district
court denied both motions, and this appeal followed.
II.
We begin with AKF’s challenge to the constructive trust, reviewing the district
court’s factual findings for clear error and its legal conclusions de novo. Erdman v. City
of Madison, 91 F.4th 465, 470 (7th Cir. 2024); see also In re Miss. Valley Livestock, Inc., 745
F.3d 299, 302 (7th Cir. 2014).
“A constructive trust is the formula through which the conscience of equity finds
expression.” Beatty v. Guggenheim Expl. Co., 122 N.E. 378, 386 (N.Y. 1919) (Cardozo, J.).
Distinct from trusts created by express agreement, constructive trusts arise by operation
of law, Perry v. Wyeth, 184 N.E.2d 861, 864 (Ill. 1962), where “the person in possession of
the property would be unjustly enriched if he or she were permitted to retain that
property,” Blumenthal v. Brewer, 69 N.E.3d 834, 848 (Ill. 2016).
The district court’s basis for imposing a constructive trust over the commission
was straightforward: because AKF’s CEO had testified that the company held the
commission to pay the rightful party, permitting AKF to retain the $78,000 would
unjustly enrich it. AKF argues this was clear legal error. Constructive trusts are matters

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of state law, Davis v. Combes, 294 F.3d 931, 936 (7th Cir. 2002), and in AKF’s telling,
Illinois permits their imposition only where the person holding the property committed
some wrongdoing or where the property was transferred away from its rightful owner.
Because the court did not find AKF liable and the $78,000 commission was always in
AKF’s possession, AKF contends that the court could not impose a constructive trust.
Our examination of state law finds fewer defined edges than AKF asserts. While
Illinois courts frequently discuss constructive trusts in the context of wrongful or
mistaken property transfers, see Suttles v. Vogel, 533 N.E.2d 901, 904 (Ill. 1988); Smithberg
v. Ill. Mun. Ret. Fund, 735 N.E.2d 560, 565 (Ill. 2000), they do not always do so, see, e.g.,
Blumenthal, 69 N.E.3d at 848 (broadly stating that constructive trusts arise to prevent
unjust enrichment).
The Supreme Court of Illinois also has never expressly held that a court can only
impose a constructive trust on an innocent third-party if a property transfer occurred.
Perhaps for good reasons. The constructive trust, as an equitable remedy, is adaptable
by nature. See Golden Budha Corp. v. Canadian Land Co., 931 F.2d 196, 202 (2d Cir. 1991)
(characterizing the remedy as “a flexible device” that “must not be bound by an
unyielding formula” (internal quotation marks omitted)). So courts generally do not
“describ[e] all the specific forms of inequitable holding” which create a constructive
trust, “but rather reserve[] freedom to apply this remedy to whatever knavery human
ingenuity can invent.” George G. Bogert, et al., The Law of Trusts and Trustees § 471,
Westlaw (3d ed. Jul. 2024 update).
Against this backdrop, we conclude that Illinois’s highest court has neither
sanctioned nor shunned the imposition of a constructive trust in these circumstances.
We thus must peer across the Erie gap and predict how our esteemed colleagues on the
Illinois Supreme Court would likely rule. See Straits Fin. LLC v. Ten Sleep Cattle Co., 900
F.3d 359, 369 (7th Cir. 2018). As we do so, we find the court’s most recent and in-depth
case on the doctrine of constructive trusts—Smithberg—particularly instructive.
In Smithberg, the Illinois Supreme Court considered the availability of equitable
relief where a municipal employee purposefully violated his divorce decree by
changing the beneficiary of his death benefits to his second wife shortly prior to his
passing. 735 N.E.2d at 562–63. When the deceased’s first wife filed suit to compel the
retirement fund to pay her regardless, his second wife contended that a state statute
precluded dispersal of the benefits to anyone but the beneficiary on file. Id. at 564. The
Illinois Supreme Court unequivocally rejected this contention. It emphasized that courts
retain “inherent equitable power, derived from the historic power of equity courts.” Id.

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at 565. And equitable relief directing payment to the plaintiff “be it by constructive trust
or some other form” was appropriate under the circumstances. Id. at 566.
Crucially, the Illinois Supreme Court found that this equitable power could work
upon either the deceased’s second wife or the municipal retirement fund to direct the
transfer of the death benefit to the deceased’s first wife. See id. at 563, 565. The
retirement fund, while innocent and holding benefits that had not been previously
transferred into its possession, had invoked the “panoply of judicial powers
traditionally at a court’s disposal” and professed desire for “direction from a court” as
to whom to pay. Id. at 563. In so doing, the fund acknowledged the court’s authority to
order payment and “agreed to pay the benefit to either party.” Id. (emphasis added).
So too here. AKF’s CEO unequivocally testified under oath that he was “in this
lawsuit offering just tell me where do you want – whose money is it? You figure out.”
With this testimony, he made clear the money did not belong to AKF and delegated to
the court the responsibility of determining its rightful owner. Having sought the court’s
direction, AKF may not now object to the court’s order to transfer the commission.
What’s more, the district court and advisory jury may have reached a different
conclusion on AKF’s liability had Shvarts testified candidly that AKF had no intention
of paying LQD the $78,000 commission. To allow AKF to avoid liability through
promises to pay the rightful party and then reverse course and retain the money it
repeatedly acknowledged it owed would be the definition of unjust enrichment. And as
both the Supreme Court of Illinois and we have observed, it is the inequity of unjust
enrichment that gives rise to a constructive trust. See Hofert v. Latorri, 174 N.E.2d 866,
868 (Ill. 1961); In re Miss. Valley Livestock, Inc., 745 F.3d 299, 304 (7th Cir. 2014).
This is not to say that courts may impose constructive trusts to remedy mere
contract breaches or unpaid debts. Illinois law is clear they may not. Perry, 184 N.E.2d at
863; Amendola v. Bayer, 907 F.2d 760, 763 (7th Cir. 1990); see also 35 Ill. Law & Prac. Trusts
§ 55 (“[F]ailure to carry out a promise or to pay a debt . . . does not in itself constitute
fraud or an abuse of confidence or duty requisite to the existence of a constructive
trust.”). AKF did more than promise to pay LQD the commission. It invoked the court’s
authority to decide the commission’s rightful owner and relied on its deference to the
court’s determination to demonstrate that it had not colluded with Rose. These actions
vested the court with the equitable power to direct payment of the commission.
We therefore conclude that Illinois’s highest court would likely find the equitable
remedy of a constructive trust available in these circumstances. Acting as the Illinois

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Supreme Court did in Smithberg, the district court invoked equity’s power to deem
“done that which ought to have been done.” 735 N.E.2d at 569. The experienced judge
deftly implemented the jury’s advisory verdict and brought an orderly and equitable
resolution to the litigation. We find no error in the court’s judgment.
III.
AKF also contends that the district court erred when denying its motion for
attorney’s fees. We review the award or denial of attorney’s fees for abuse of discretion.
4SEMO.com Inc. v. S. Ill. Storm Shelters, Inc., 939 F.3d 905, 913 (7th Cir. 2019).
The DTSA and ITSA both contain fee-shifting provisions that permit a court to
award attorney’s fees to a prevailing defendant “if a claim of the misappropriation is
made in bad faith.” 18 U.S.C. § 1836(b)(3)(D); see also 765 Ill. Comp. Stat. Ann. 1065/5.
Under the ITSA, bad faith claims include frivolous claims and claims brought or
maintained for an improper purpose, “such as to harass or to cause unnecessary delay
or needless increase in the cost of litigation.” Multimedia Sales & Mktg., Inc. v. Marzullo,
188 N.E.3d 789, 795 (Ill. App. Ct. 2020); see also Tradesman Int’l, Inc. v. Black, 724 F.3d
1004, 1016 (7th Cir. 2013) (declaring that an ITSA claim is made in bad faith when it is
“initiated in bad faith, maintained in bad faith, or both”). We assume a similar standard
under the DTSA. Cf. RJB Wholesale, Inc. v. Castleberry, 788 F. App’x 565, 566 (9th Cir.
2019) (looking to Washington state law’s definition of bad faith when reviewing a
motion for attorney’s fees under the DTSA); Elmagin Cap., LLC v. Chen, No. 22-2739,
2024 WL 2845535, at *5 (3d Cir. Mar. 21, 2024) (doing the same for Pennsylvania law).
The DTSA and ITSA’s bad faith standard is plainly not met here. As the district
court pointed out, LQD had several nonfrivolous reasons to believe Rose had
transmitted LQD’s protected trade secrets to AKF. LQD knew, for example, that Rose
had forwarded more than 60 funding applications to AKF and that both its own expert
and AKF’s expert had concluded these applications could constitute protected trade
secrets. While the district court ultimately rejected the experts’ conclusion, this does not
vitiate LQD’s prior good faith basis for its claim. LQD also had evidence that Rose had
been in regular contact with AKF, used multiple email addresses to communicate with
competing firms, and downloaded proprietary client files onto his personal computer.
Again, while this evidence was ultimately insufficient to survive summary judgment,
we cannot say that LQD’s theory of misappropriation was frivolous.
Neither of AKF’s cited authorities awarding defendants attorney’s fees compel
us to adopt a different conclusion. In Clark Consulting, Inc. v. Richardson, the plaintiff

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had no basis to allege that trade secret material was ever downloaded or transmitted
from its internal systems—a significant difference from this case. No. 07 C 7231, 2009
WL 424541, at *1 (N.D. Ill. Feb. 19, 2009). And in Multimedia Sales & Marketing, the
alleged “trade secrets” were the names of advertising customers that the plaintiff sent to
radio stations for public broadcasting, without restriction. 188 N.E.3d at 794. Here, the
allegedly misappropriated information was not publicly broadcast, and LQD thus had a
much stronger basis to believe the information contained protected trade secrets.
In short, we find no error, much less an abuse of discretion, in the district court’s
rejection of AKF’s petition for attorney’s fees.
A FFIRMED.

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