Recently in Corporate Law Category

March 20, 2014

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

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.

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February 20, 2014

The End of Forum Shopping?

The Supreme Court's January decision in Daimler Chrysler v. Bauman has clarified the standard that must be met to establish general personal jurisdiction over corporations that seemingly have a presence in a particular state. The effect of the decision is to limit, to some degree, a plaintiff's ability to "forum shop" - or, to strategically select a certain court in a certain state in which to file a lawsuit in order to gain an advantage over the rival corporation.

Daimler is a German corporation that was sued by Argentinian plaintiffs in California. The plaintiffs brought suit for human rights violations that occurred in Argentina. At issue was whether a defendant parent corporation may be called to a certain court under the pretense of general jurisdiction when a subsidiary of the corporation does business in that state. The Court found that California did not have general jurisdiction over Daimler, and so Daimler could not be sued in California for injuries caused by the conduct of its Argentinian subsidiary when that conduct took place entirely in Argentina.

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February 13, 2014

No Claim for Misappropriation of Trade Secrets That Are Inadequately Protected

Generally, a company can protect its trade secrets from misappropriation by taking steps to ensure that such information is not easily accessible or otherwise easily disseminated. Requiring employees and others who are exposed to customer lists, business processes, and the like to sign confidentiality agreements is just one way to be vigilant in trade secret protection. However, as highlighted in a recent superior court decision, in the absence of a signed confidentiality agreement, businesses must take other reasonable steps to keep confidential information confidential, or risk that their trade secrets will be stolen - with no legal recourse against the trade secret thief.

In CRTR, Inc. v. Lao, CRTR hired an independent contractor without requiring him to sign a confidentiality agreement. The contractor was the nephew of a CRTR customer who had commenced negotiations with CRTR to purchase the business. When the negotiations failed, the contractor stole a number of trade secrets from the CRTR, and CRTR sued both the contractor and his uncle for misappropriation. When the contractor moved for summary judgment, the court found that CRTR had properly identified the stolen material and had demonstrated that the material would cause damage to the company's interest if the information was shared. Despite that finding, the court granted the contractor's summary judgment motion.

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January 30, 2014

Non-Compete Case: No Competition, No Preliminary Injunction

A federal district court in Massachusetts recently denied a corporation's motion to preliminarily enjoin its former employee from working at an alleged competitor corporation, as was prohibited in the employee's non-competition agreement. The court's decision turned on the fact that the plaintiff never proved that the defendant corporation was in fact a competitor in the marketplace, and thus did not satisfy the requirements that would warrant a preliminary injunction.

In Upromise, Inc. v. Peter Angus and Intuition Systems, Inc., Upromise, Inc. ("Upromise") specialized in servicing college savings plans, and was the former employer of Peter Angus ("Angus"). Angus left Upromise, and found a position with Intuition Systems, Inc. ("Intuition"), a company that focused on providing prepaid service of college savings plans. Upromise filed a lawsuit and a motion for preliminary injunction against Angus and Intuition, seeking (1) to enjoin Angus from accepting employment with Intuition, an alleged competitor of Upromise, for a period of one year pursuant to Angus' non-competition agreement with Upromise, or (2) specific performance of a negotiated settlement agreement to prevent Intuition from hiring Angus.

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January 23, 2014

Life After Death for Delaware Corporations

The law has frequently regarded corporations as akin to persons, treating them as entities separate from their owners and granting rights to and imposing obligations upon them quite similar to those imposed on individuals. However, a recent Delaware Supreme Court decision demonstrates how the Delaware statutes have granted Delaware corporations a type of corporate immortality - but only when it comes to their potential liability to third parties.

In the case, In the Matter of Krafft-Murphy Company, Inc., the Delaware Supreme Court considered third parties' right to pursue claims against a dissolved corporation, and any time limitations placed upon that right by Delaware's statutory corporate dissolution scheme. Beginning in 1989, the defendant corporation was named as a defendant in hundreds of asbestos personal injury lawsuits in multiple jurisdictions, all of which the corporation's insurance companies have been defending on its behalf. In 1999, the corporation formally dissolved, and its only presently remaining assets are their unexhausted insurance policies. The plaintiffs instituted the Delaware case seeking the appointment of a receiver for the dissolved corporation, to enable them to lawfully pursue their claims against the dissolved entity.

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January 17, 2014

A Corporate President's Power May Be Inherently Limited

In a recent decision, the Worcester Superior Court ruled that the president of a corporation has limited power with respect to the firing of corporate officers. The court explored the powers of a corporate president and his ability to hire and fire at-will employees under the guise of his general authority. In that case, the court held that the president's firing of the vice president without support from the board of directors was ineffective.

In Arklow, Inc. et al. v. Weadock, the court addressed the issue of whether a president's unilateral termination of the vice president was effective. Arklow, Inc. and Arlow, LP sought injunctive relief against Daniel Weadock to remove him from his position as the manager at the International, a local golf course owed by the partnership. This court proceeding shortly followed the decision of Bryan Weadock, the president of Arklow, Inc., to fire Daniel Weadock, the vice president at Arklow, Inc. and manager of the International. The court's opinion involved a discussion of the principals of corporate law, as it analyzed the difference between Daniel's managerial role and his role as vice president.

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August 21, 2013

New DE Public Benefit Corporation Legislation May Entice Social Entrepreneurs

Recent legislation passed in Delaware furthers a growing movement for the formation of public benefit corporations. This trend continues to gain support throughout the country, as Delaware becomes the nineteenth state to pass public benefit legislation. Massachusetts passed similar legislation under M.G.L Ch. 156E in 2012. However, Delaware's new public benefit statute may make it the prime choice of entity for public benefit corporations and social entrepreneurs.

By definition, public benefit corporations are created to promote a "material positive impact on society and the environment." These beneficial impacts must be stated by the corporation and reported to shareholders regularly. Public benefit statutes typically require directors of public benefit corporations to manage the corporation in a manner that balances (1) the stockholders' pecuniary interests, (2) the interests of those materially affected by the corporation's conduct, and (3) the public benefit identified in the corporation's certificate of incorporation. The goal of public benefit corporations is to allow companies to establish and manage a benefit to society in a sustainable manner. Some examples of local public benefit corporations are the Massachusetts Bay Transportation Authority (MBTA), Massachusetts Port Authority, and Massachusetts Turnpike Authority (MTA).

Public benefit corporations represent a relatively new corporate structure that supports the social entrepreneur; that new breed of entrepreneur who seeks to . resolve societal issues in innovative and effective ways while maintaining a company in which profitability is still part of the landscape. , The public benefit corporate structure allows for particular advantages and protections to social entrepreneurs including liability limitations and more expansive control over the company objectives. Public benefit corporations may pursue objectives other than financial gains, e.g., cultural and environmental.

Along with the many business benefits of incorporating in Delaware, the Delaware statute offers flexibility in terms of both operations and reporting. A result Delaware is likely to become the jurisdiction of choice for many social entrepreneurs. Unlike other statutes, the Delaware law does not require the appointment of a benefit director and/or a benefit officer charged with overseeing and assessing the corporation's efforts to promote its stated public benefit(s); public disclosure of the benefit report and/or the submission of the benefit report to the secretary of state; or annual publication of a benefit report. While some might decry a lack of oversight, the structure allows the Delaware public benefit corporation the ability to spend its resources on its mission rather than on compliance with overly rigorous reporting requirements.

Whether or not this legislative "social experiment" is successful, remains to be seen. What is certain, is that Delaware once again has taken the lead in creating an attractive corporate environment for yet another group of entrepreneurs.