Delaware Law Updates
{ Banner Image }
PDF

Triton Constr. Co., Inc. v. E. Shore Elec. Servs., Inc., Del. Ch., C.A. No. 3290-VCP (May 18, 2009) (Parsons, V.C.)

May 18, 2009

In a post-trial opinion, the Court found breaches of fiduciary duty by a corporate employee based on principles of agency law. The individual defendant was employed full-time by the plaintiff electrical contractor as an estimator on projects. In that capacity, the individual defendant was privy to certain business practices and information of the plaintiff. While employed by the plaintiff, the individual defendant took a part-time job with the defendant electrical contractor assisting, albeit to a lesser extent, with that contractor’s estimates. The two electrical contractors competed for the same jobs in the same general geographic area. Of the 195 bids on which the individual defendant assisted the defendant contractor during the twenty-two month period where he worked for both contractors, 13 of those bids resulted in the two contractors bidding against each other. The plaintiff was awarded one of those jobs, while the defendant contractor was awarded two of those jobs. Neither contractor was awarded the other ten jobs.

Among other things, the Court ruled that the individual defendant did not owe fiduciary duties to the plaintiff based on his position; in other words, he “was not a key managerial employee” because he did not oversee a division of the company, “participate in . . . financial decisions,” have more than a basic understanding of the company’s financial welfare, make policy decisions, or advise the CEO. Because, however, the individual defendant was able to contractually bind the plaintiff, the Court found the individual defendant was an agent of the plaintiff and owed the plaintiff duties under agency law. Furthermore, based on the content of weekly meetings the individual defendant attended, the plaintiff provided the individual defendant with “secret information” that ― even though it did not amount to a trade secret ― elevated those agency duties to fiduciary duties. In considering whether the individual defendant breached any fiduciary duties, the Court first found that the individual defendant used the plaintiff’s confidential information to the benefit of himself and the defendant contractor, which amounted to an agent placing himself in an antagonistic position to his principal and a breach of the fiduciary duty of loyalty. These actions were “not immunized by the privilege of agents to make preparation to compete with their employer before the end of their employment relationship” because of the amount of time during which he worked for both contractors, at times preparing bids on the same projects, and his concealment of his employment with the defendant contractor from the plaintiff. Second, the Court found that the individual defendant did not usurp corporate opportunities from plaintiff or breach a fiduciary duty by failing to inform the plaintiff of the the opportunities for which he assisted the defendant contractor. The Court noted that the plaintiff clearly did not have a claim with respect to the 13 opportunities on which both contractors bid. Plaintiff likewise could not show that it “had an interest or expectancy” in the other projects because some were public bids to which plaintiff had equal notice and some were private bids selectively given to certain electrical contractors other than the plaintiff. The Court likewise found that the individual defendant did not have a duty to disclose these bids to the plaintiff because it would breach his duty to the defendant contractor to safeguard confidential information. Third, the Court found that the individual defendant breached his duty of disclosure in failing to inform the plaintiff that he was competing against it “and using information acquired during his agency.” The Court reasoned that the individual defendant’s activities for the defendant contractor were “within the scope of his agency relationship with [plaintiff]” and he competed directly against the plaintiff. Finally, the Court found the individual defendant breached his fiduciary duty of confidentiality to the plaintiff because he “probably” used information from the plaintiff in preparing the bids for defendant contractor on the 13 jobs on which both contractors bid, especially in light of the fact that the defendant contractor’s bids were “only slightly lower than” the plaintiff’s bids. As a result of these breaches and defendants’ tortious interference with the plaintiffs’ business relations, the Court awarded damages measured by the profit defendant contractor received from the two bids it was awarded out of the 13 jobs on which both contractors bid plus the disgorgement of the money the defendant contractor paid the individual defendant. The Court’s rationale was that a fiduciary should not benefit from his or her breach. The Court also found that the defendant contractor and its controlling officer (by imputation) knew of and participated in the individual defendant’s fiduciary breaches. This finding was premised on the facts that the defendant contractor was aware of the individual defendant’s employment by the plaintiff, who was a competitor, and the steps taken by the defendants to conceal their communications. Accordingly, the defendant contractor and its controlling officer were held to have aided and abetted the individual defendant’s breaches of fiduciary duty and were held jointly and severally liable therefor.

The full opinion is available here