No Breach of Fiduciary Duty by Corporate Shareholder Who Opened Similar Business

March 20, 2014

In Ricci Consultants, Inc. v. Bournival, a case recently tried in the Norfolk Superior Court, it was determined that a defendant did not breach a fiduciary duty when she left employment with Ricci Consultants, Inc. (RCI), an actuarial consulting firm in which she was a shareholder with a one-third interest, to start her own actuarial consulting firm, KMS Actuaries, Inc. (KMS). Although both firms provided actuarial consulting services for clients, the types of clients each firm serviced differed: RCI specialized in private sector work, while KMS focused on the public sector. Following the defendant's departure from RCI, both parties filed suit against each other, both alleging intentional interference with contractual/advantageous relations with customers, and breaches of fiduciary duties. A jury returned verdicts in favor of the defendant and KMS on the intentional interference claims. The parties waived their right to have a jury decide the breach of fiduciary duty claim, which the judge considered.

RCI alleged that the defendant, through KMS, competed with RCI and thereby stole corporate opportunities from KMS, to which she owed fiduciary duties. In doing so, RCI alleged that the defendant breached her duty of loyalty owed to RCI.

The judge found these allegations to be too broad and without merit, noting that there was no duty of loyalty that would compel the defendant, by merely owning shares in RCI, to continue to work for the company. Moreover, no shareholder agreement, employment agreement, non-competition agreement, or provision in RCI's articles of incorporation or bylaws precluded the defendant from leaving employment at RCI. Nothing prevented the defendant from earning a living by using her actuarial skills, so long as she did not improperly take advantage of the corporate opportunities RCI presented.

RCI alleged that defendant's departure left RCI completely unable to service public sector clients. The court disagreed, finding that RCI could have hired someone else to handle the defendant's former responsibilities. The defendant had offered to help RCI's public sector clients with the transition, but RCI refused. The court found that RCI's refusal to consider any alternative was unreasonable, holding that the defendant could not have breached her fiduciary duty through her resignation alone. Although the defendant and KMS did service some of RCI's public sector clients, they did so only after RCI had abandoned those clients. As the court observed, "It is not a seizure of a corporate opportunity to service customers where the corporation has disclaimed any intention or ability to do further work for that client."

This result demonstrates the important of clearly articulating in a shareholder agreement, employment agreement, or other corporate document what activities the owners of a close corporation will deem to be prohibited or reasonably considered competitive activity. Absent such provisions, the law will not impose liability on shareholders for breach of fiduciary duties where the evidence does not support any such breach.