Sixth Circuit Upholds Breach of Fiduciary Duty Claims and Multi-Million Dollar Judgment

Sixth Circuit Upholds Breach of Fiduciary Duty Claims and Multi-Million Dollar Judgment

 

      In the decision rendered last week by the Sixth Circuit Court of Appeals, it affirmed a decision against certain employees who set up a company that was competing with their employer. Nedschroef Detroit Corp. v. Bemas Enterprises LLC, Case No. 15-1728 (Sixth Cir. April 22, 2016).

      Marc Rigole and Bernard LePage were employees of Nedschroef Detroit Corporation.  In 2011, Rigole and LePage formed Bemas Enterprises LLC to provide replacement parts for fastening machines that were manufactured in Europe by a Nedschroef affiliate.  The catch was that their employer had exactly the same business purpose. Upon learning of the competing venture they had organized, Nedschroef terminated with Rigole and LePage and filed suit against them. Ultimately the district dourt granted summary judgment to Nedschroef on a variety of theories including breach of the duty of loyalty, breach of fiduciary duty and misappropriation of corporate opportunities, and awarded damages in the amount of $3,680,344.18. Further, LePage and Rigole were permanently enjoined from providing replacement parts or services for the Nedschroef fastener machines.

      On appeal, the Sixth Circuit handily rejected the defendant's suggestion that their LLC Bemas was not competing with Nedscrhroef because it was only providing services to those people whose quotes from Nedschroef had been rejected. As an aside, the irony seems to have been lost upon them in that both LePage and Rigole, in the course of their employment with each off, had authority to issue quotations to customers.

      The court also affirmed the finding that the defendants had misappropriated Nedschroef 's proprietary secrets, including by downloading from its proprietary and password-protected computer system various drawings of replacement parts.

       As another aside, it is curious that Rigole and LePage, while asserting that they had done nothing wrong, had set up Bemas Enterprises LLC's under the names of their respective wives.

      Ultimately, employees owe a fiduciary duty of loyalty to their employers. That duty precludes the employees, other than with respect to their agreed compensation, to benefit from the property and affairs of their employer. Clearly Rigole and LePage never learned of these limitations. Presumably a judgment in excess of $3.6 million and a permanent injunction will bring them up to speed.