Opinion ID: 1776404
Heading Depth: 2
Heading Rank: 3

Heading: Fiduciary duty to Quixote

Text: Quixote claims the Disctronics Group owed it a fiduciary duty, but the Disctronics Group never owed Quixote, a competitor, a fiduciary duty of loyalty. Quixote cites several cases for the proposition that stock pledgees are owed fiduciary duties. See In re Pittsburgh & L.E.R.R., 543 F.2d 1058, 1067 (3d Cir.1976); FDIC v. Kerr, 637 F.Supp. 828, 840-41 (W.D.N.C. 1986); Weingard v. Atlantic Savings & Loan Ass'n, 1 Cal.3d 806, 83 Cal.Rptr. 650, 464 P.2d 106, 112 (1970); Gibson v. Manuel, 534 So.2d 199, 201-02 (Miss.1988); Gustafson v. Gustafson, 47 Wash.App. 272, 734 P.2d 949, 953-54 (1987), review denied, 109 Wash.2d 1024 (1988). After examining those cases, we find that they concerned alleged breaches of the duty of care owed by the corporation, as well as causes of actions based upon the stock pledge agreement. In re Pittsburgh & L.E.R.R., 543 F.2d at 1067 (action brought to challenge settlement agreements in other shareholder derivative suits that dissipated assets of corporation); Kerr, 637 F.Supp. at 838 (pledgee could maintain action involving claims under RICO and claims of corporate waste and fraudulent liquidation when the defendant was alleged to have breached his duty to refrain from doing anything which might injure the value of FDIC's collateral); Weingard, 1 Cal.3d at 818, 83 Cal.Rptr. at 656, 464 P.2d at 112 (pledgee of stock has an interest in the stock sufficient to entitle him to bring an action alleging fraudulent conveyance that affects the preservation and protection of the assets and property of the corporation); Gibson, 534 So.2d at 202, 203 (a pledgor of corporate stock when in control of the corporation has the affirmative duty to preserve the corporate assets for the benefit of the pledgee; duty of the pledgor was to conduct his office with ordinary prudence and with all good fidelity to the end that the value of its shares be maintained); Gustafson, 47 Wash.App. at 276-78, 734 P.2d at 952-54 (in an action regarding wrongful disposition of corporate property, a stock pledgee has standing to maintain a derivative action in order to protect her security interest); see also Giblin v. Murphy, 97 A.D.2d 668, 469 N.Y.S.2d 211, 215 (1983) (directors owe a duty of care to protect the stock interest of pledgees, and that duty is breached by willful, wanton negligence with respect to its assets); Ashburn v. Wicker, 95 N.C.App. 162, 165, 381 S.E.2d 876, 878 (1989) (a pledgee of corporate stock has a sufficient beneficial interest to have standing to sue the corporation derivatively for mismanagement), overruled on other grounds by Alford v. Shaw, 327 N.C. 526, 398 S.E.2d 445 (1990). We find these aforementioned cases, cited by Quixote, unpersuasive. Quixote also argues that, because it owned 49% of the stock in DMI at the time the Disctronics Group executed the purchase agreement, it can claim that the opportunity presented by MTI belonged to DMI, and therefore, to it as a stockholder. This argument, while facially appealing, fails to examine the realities of the situation. Quixote, in the Work-Out Agreement, stated that the purpose of the agreement was to secure the assets and to prevent bankruptcy by DMI in order to ensure payment of DMI's indebtedness to Quixote. The agreement provided that at the end of the option period, barring extensions, either Quixote or the Disctronics Group would own all of DMI. Also, and we think this important, the agreement stated that the agreement created no relationship such as partnership or joint venture between the Disctronics Group and Quixote. Under the facts as found by the trial court, Quixote never became a party to be protected from the excesses of the majority shareholder, the Disctronics Group. The opportunity allegedly usurped from DMI was never DMI's opportunity and could not logically be so characterized, given the facts of the creation of the opportunity and the relationship of the concerned parties. Thus, we hold that Quixote and DMI cannot, as a matter of law, maintain an action for usurpation of the corporate opportunity represented by the Disctronics Group's acquisition of MTI. We hold that the trial court erred in granting Quixote and DMI a preliminary injunction. Therefore, we reverse the order of the trial court and remand this action for further proceedings in accordance with this opinion. REVERSED AND REMANDED. ADAMS, HOUSTON, STEAGALL and KENNEDY, JJ., concur. MADDOX, J., dissents.