Opinion ID: 1229135
Heading Depth: 3
Heading Rank: 1

Heading: Sufficiency of the Evidence of a Breach of Fiduciary Duty

Text: Wilkinson and Taulman argue that the evidence at trial was insufficient to support the jury's findings that they breached their fiduciary duty. Navigant contends that Wilkinson and Taulman breached their fiduciary duty by attempting to sell the Claims Practice for their own benefit, disclosing Navigant's confidential information to its competitors, soliciting Navigant's employees, and failing to disclose their plan to sell the Claims Practice before Navigant committed to the four-year Thanksgiving Tower lease. There can be no question that the first three actions, if proved, would constitute a breach of fiduciary duty. An employee in a position of trust and confidence who attempts to sell his employer's business for personal gain violates the most basic norms of fair dealing and good faith, and the disclosure of confidential information and solicitation of employees are among the conduct specifically proscribed by Johnson and Abetter Trucking. The fourth action, which might be characterized as failing to disclose a plan to compete when an employer commits to a new lease, presents a more difficult question. At the very minimum, a fiduciary who negotiates on behalf of his employer must disclose any adverse interest in the matter of the negotiation. See Kinzbach, 160 S.W.2d at 509; Abetter Trucking, 113 S.W.3d at 511. Beyond that, he also has a duty to deal openly with the employer and to fully disclose to the employer information about matters affecting the company's business. Abetter, 113 S.W.3d at 510. But, on the other hand, an employee who plans to compete with his employer has no general duty to disclose his plans. Johnson, 73 S.W.3d at 201. The Restatement explains: In general, an employee or other agent who plans to compete with the principal does not have a duty to disclose this fact to the principal. To be sure, the fact that an agent has such a plan is information that a principal would find useful, but the agent's fiduciary duty to the principal does not oblige the agent to make such disclosure. . . . In this respect, the social benefits of furthering competition outweigh the principal's interest in full disclosure by its agents. However, an agent has a duty not to mislead the principal about the agent's intentions. An agent's silence may mislead the principal when, for example, the agent knows that the principal is about to embark on an expansion in the principal's business in which the agent will play a crucial role that will not easily be replicated once the agent departs. RESTATEMENT (THIRD) OF AGENCY § 8.04 cmt. c. Thus, the rule is that generally a fiduciary is not required to disclose his plans to compete, but that some circumstances may require disclosure. An assessment of the propriety of an employee's conduct under this sort of standard seems particularly susceptible to being shaded by after-the-fact knowledge, as described by the Restatement, so we must be particularly vigilant in our examination of the evidence that was before the jury relating to the lease. In the instant case, the jury had a sufficient basis to conclude that Wilkinson and Taulman breached their fiduciary duties, including by failing to disclose their plans when the lease was signed. The testimony and evidence at trial showed that beginning in April 2001, Wilkinson and Taulman made proposals to sell the Claims Practice to a number of Navigant's competitors. Wilkinson and Taulman testified that these proposals were made without Navigant's knowledge or authorization. The proposals promised the delivery of all, or virtually all of the Claims Practice's clients, as well as accompanying employees, in exchange for a payment to a corporation owned by Wilkinson and Taulman. Wilkinson testified that none of the proposals provided that Navigant would receive any of the proceeds from the contemplated sale of the Claims Practice. Further, as noted earlier, the proposals provided detailed information about the Claims Practice, including revenue projections, backlog estimates, margin rates, descriptions of current and potential engagements, specific information about the roles and responsibilities of named management-level employees, and more general information about the other employees. Five of Navigant's competitors received information of this type. Navigant's corporate controller testified that he had reviewed the information in the proposals, and that much of it was information that Navigant considered proprietary and confidential. Wilkinson testified that the financial projections were internal work, and that the information relating to expenses, gross margins, and the like was not generally public or published. Wilkinson also marked the proposals confidential, and had sought a confidentiality agreement from at least one competitor who was to receive a proposal. [5] Additionally, in connection with the proposal to sell the Claims Practice to PWC, Wilkinson and Taulman invited PWC representatives to Navigant's Dallas office and introduced them to Navigant employees. In early June 2002, at a similar meeting in the Dallas office with representatives from Rust, Wilkinson and Taulman again introduced Navigant employees to the visiting competitor. On June 26, 2002, also in connection with the proposal to Rust, Wilkinson and Taulman brought a Navigant employee to Minneapolis to interview with Rust. Taulman testified that the trip to Minneapolis was not on Navigant business, and that she later reimbursed Navigant for the cost of her plane ticket, which was inadvertently expensed to Navigant. In May 2001, Wilkinson signed, on Navigant's behalf, a four-year lease for office space in Thanksgiving Tower in downtown Dallas. The record indicates that Wilkinson took a lead role in negotiating the lease terms and dealing with the real estate agent, but that he and Taulman reviewed a number of alternatives and recommended the Thanksgiving Tower space to Navigant's corporate office. Navigant's general counsel authorized Wilkinson to sign the lease. Wilkinson testified that at the time he signed the lease, he had not informed Navigant of the proposal to sell the Claims Practice to First Union that had been made the month before, in April 2001. When pressed on the issue, he explained, I don't think I would have been well-advised to tell [Navigant] I was talking to anybody. Taulman testified that when Wilkinson was signing the lease, she made the decision for herself not to tell Navigant about the First Union offer. The Thanksgiving Tower lease was also a topic of conversation in a November 2001 conference call between Wilkinson, Taulman, and two other Navigant employees. [6] In this call, a transcript of which appears in the record, Wilkinson described the possibility of buying the Claims Practice from Navigant. He explained that a reasonable deal would be to give Navigant ten percent of the Claims Practice's collected receivables for a few years, purchase the Dallas office's fixtures, furniture, and equipment, and assume certain payables that they need to get rid of. Wilkinson explained that the lease was significant because the Claims Practice was Navigant's only business in Dallas, meaning that Navigant would be stuck with four years of an entire floor of a downtown office building, with no way to absorb it. [7] Wilkinson would therefore offer to effectively assume Navigant's liability on the lease by subleasing it back from Navigant. As an added benefit, this would allow him to keep the business in the same space, which Navigant would no longer have a use for: And since I was talking about subleasing anyway, you know it would only be a dog in the manger to say no, you must leave. Further relevant to the lease was Wilkinson's September 24, 2002, meeting with two Navigant corporate officers in Chicago, in which Wilkinson proposed a variation of the deal he had described in the November 2001 phone call. Navigant's general counsel testified that at this meeting Wilkinson offered to take the business off [Navigant's] hands in exchange for an assumption of the Thanksgiving Tower lease. In a document Wilkinson prepared in anticipation of the meeting, he laid out his range of negotiating points with Navigant. The document essentially listed the ongoing liabilities associated with the Claims Practice that Navigant would be responsible for if it refused to agree to a deal on Wilkinson's proposed terms and the business were merely dissolved. With regard to the lease, Wilkinson's opening position was that he would get his own lease for the business. This created negotiating leverage because Navigant must honor ongoing lease of vacant 36th floor. Wilkinson's closing position was to assume the lease from Navigant. [8] Wilkinson estimated the value of the assumed liability for the lease to be $1.35 million. At trial, when asked what he meant by leverage, the following exchange occurred: Wilkinson: What I mean by leverage, issues that would allow them [Navigant] or encourage them to make decisions. Plaintiff's counsel: I can go with that. So you wanted to encourage them to make decisions in your favor, and these were things that you were looking at that would help encourage them to go your way. Wilkinson: I wanted to encourage them to be counteroffers, yes, and that would be in my favor. Based on the foregoing evidence, there was a sufficient basis for the jury to conclude that in attempting to sell the Claims Practice, Wilkinson and Taulman breached their obligation of fair dealing and good faith, and in the process disclosed Navigant's confidential information. The jury could have concluded that their acts of introducing Navigant employees to competitors' representatives and flying an employee to interview with a competitor rose to the level of solicitation. There was also sufficient evidence for the jury to conclude that Wilkinson and Taulman breached their fiduciary duty by failing to disclose their plan to sell the Claims Practice before the lease was signed. We do not mean to suggest that the mere fact that an employer signs a new lease gives rise to a duty of disclosure in all employees who have plans to compete with the employer. But in this case, Wilkinson and Taulman were the two top employees in the Dallas office, and they had active roles in negotiating, recommending, and signing the lease. There was also evidence that the plan to compete was itself wrongful, and that part of this plan was to use the lease as leverage against Navigant in future negotiations to acquire the Claims Practice on favorable terms. The reasonable inference for the jury to draw was that Wilkinson and Taulman had a conflict of interest on the lease, because though they were charged to act for Navigant's benefit when recommending it, they also had an interest in seeing Navigant burdened with a liability that they could use as leverage against it in the future. Given these specific facts, the jury was entitled to conclude that Wilkinson and Taulman's failure to disclose their activities before Wilkinson signed the lease constituted a breach of fiduciary duty.