In a recent blog post, I discussed how all-encompassing a fiduciary duty can be and how in-house counsel in closely held businesses might want to advise insiders about measures that could curb or even eliminate some of those duties. A new case from the Massachusetts Superior Court, Christensen v. Cox, highlights some other need-to-know aspects of fiduciary duties.
Clayton Christensen is a leader in the field of “disruptive innovation,” and he and his brother, Mathew, are involved in at least two companies working in that area, Disruptive Innovation GP, LLC and Rose Park Advisors, LLC. In 2010, Shawn Cox was hired as an employee at will of Rose Park, although he ended up providing various services to both companies. In April of 2013, Cox notified the Christensens that he would be taking a new job, and his last day of employment with Rose Park was at the end of May.
Shortly after Cox left, he asserted that he had been given equity in Disruptive Innovation and demanded a distribution based on that equity. While the Christensens disputed that Cox had been given any equity in Disruptive Innovation, Cox pointed to an April 2013 memo (signed by … Keep reading
Longstanding Massachusetts law holds that officers, directors, partners, and even equity holders in closely held corporations owe their respective entities and related equity holders a fiduciary duty to act with the utmost good faith and loyalty and “the punctilio of an honor ….” While that might sound eminently reasonable, if one has a fiduciary duty, she can risk personal liability by engaging in a variety of conduct that might seem to make sound business sense and/or appear to be completely benign.
For instance, if an officer of one company causes it to enter into a contract with another, and the officer has an equity interest in the second entity, he is exposed to a claim for self-dealing – even if it appears that the transaction will benefit both businesses. Likewise, a partner who invests in a business similar to her partnership could be sued for a “diverting a business opportunity” if she did not offer her partners an opportunity to participate equally in the investment.
Plainly, therefore, imposing fiduciary duties can have a chilling effect on conduct and transactions that might be good for business or, at least, would not be unfair. Fortunately, however, cases like the recently decided … Keep reading
In the course of its decision in Chambers v. Gold Medal Bakery, Inc., the Supreme Judicial Court of Massachusetts highlights a number of important rules related to the attorney-client privilege, as well as various rights and duties of officers and directors in closely held corporations. While it is important to understand the detailed facts of Chambers in order to gain a full appreciation of its multitude of specific rulings, the overarching story is a familiar one that has played itself out over and over again (with the most notorious example being Demoulas v. Demoulas).… Keep reading
In a previous blog post, The Fiduciary Duty of Preserving Corporate Opportunities, I wrote:
In general, an officer, director, partner, LLC member or shareholder in a closely held corporation owes a fiduciary duty not to usurp for his personal benefit, a business opportunity that could and should belong to the corporation.
While I have no qualms about that statement, a recent decision out of the Massachusetts Superior Court found that a company insider was not liable for breach of fiduciary duty even though she terminated her employment relationship with the company and started her own independent business that undertook the exact same work she had been doing for her prior company. … Keep reading
I read a great piece last week by Mark Rogers arguing that corporate directors can unwittingly breach their fiduciary duty by spending too much time on mobile devices during board meetings. Not only did I agree wholeheartedly with Mark’s analysis, but it also reminded me of another fiduciary duty that company insiders, and even some in-house counsel, often wittingly ignore: the duty to preserve “corporate opportunities” for the company.
In general, an officer, director, partner, LLC member or shareholder in a closely held corporation owes a fiduciary duty not to usurp for his personal benefit, a business opportunity that could and should belong to the corporation. A classic example of a breach of this duty, which can lead to a claim for what is called the “diversion of a corporate opportunity,” occurs when the president and CEO of a company learns that a competing business is for sale, and, instead of bringing the matter to the company’s board of directors, he helps his son buy the business for himself.… Keep reading
As of August 30, 2012, administrators of retirement plans that allow participants to select investment of their accounts will be required to disclose specific information about the fees associated with such investments. One of my talented partners in the Labor, Employment and Employee Benefits Group at Burns & Levinson, Evelyn Haralampu, provides some simple guidance about these new disclosure requirements. Click here to read her update.… Keep reading