Court Reverses Summary Judgment On Breach Of Fiduciary Duty Claim Against Corporate Director

Originally published by David Fowler Johnson.

In E&E Serv. & Supply v. Ruddick, a corporation sued a former employee who formed a competing business. No. 11-14-00055-CV, 2016 Tex. App. LEXIS 7514 (Tex. App.—Eastland July 14, 2016, no pet. history). The trial court granted summary judgment for the employee based on the alleged absence of any evidence of a fiduciary duty.

The court of appeals reversed because the employee had served as an officer and director of the corporation in 2008, and, under corporate bylaws, may have continued to serve during the operable time period because, although she was not reappointed as a director, the bylaws provided that a director would continue to serve until a replacement was appointed and a replacement was not appointed until after the relevant time period. The court concluded: “At a minimum, the summary judgment evidence raises a fact question that Ruddick continued to serve as a director or as an officer until her successor was appointed in April 2011. Thus, the trial court erred when it granted summary judgment with respect to whether or not Ruddick owed a fiduciary duty based upon her status as a director and officer of E & E.” Id.

The court of appeals also held that a traditional summary judgment was in error regarding damages because the employee did not negate all of the damages recoverable for a breach of fiduciary duty. The court noted that “The damages available for a breach of fiduciary duty are quite broad.” Id. Further, the court held that “courts may disgorge all ill-gotten profits from a fiduciary when a fiduciary agent usurps an opportunity properly belonging to a principal, or competes with a principal.” Id. Therefore, the court concluded that the “damage grounds do not negate all of the damages recoverable for a breach of fiduciary duty because they do not address any profits or gains received by” the employee or her new employer.” Id.

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