Opinion ID: 751696
Heading Depth: 3
Heading Rank: 2

Heading: Liability for breach of fiduciary duty

Text: 51 On the prudent assumption that the damage award may have been based alternatively upon the found breaches of fiduciary duty, or that affirmance by this court might in any event be sought on that basis, Rothenberg challenges the imposition of liability in any amount under that theory. Specifically, he contends (1) that the magistrate judge erred as a matter of law in one of its findings of breach of fiduciary duty in Rothenberg's pre-termination conduct, and (2) that there was insufficient evidence of the required causal link between the breaches found and the specific losses for which damages were awarded to support any award. 52 AFG and Herman in response contend that the judgment in their favor may properly be affirmed on this alternative basis and they directly contest Rothenberg's two challenges to its entry on that basis. In this posture of the appeal, whether or not the judgment was in fact entered on this alternative basis, AFG and Herman as appellees properly may urge affirmance on that alternative basis. See SEC v. Chenery Corp., 318 U.S. 80, 88, 63 S.Ct. 454, 459-60, 87 L.Ed. 626 (1943). We must therefore address that counter-contention by appellees in considering Rothenberg's specific challenges. 53
54 Rothenberg's challenge to the findings of specific breaches of fiduciary duty is a narrow one. It addresses only the finding that he improperly usurped AFG's relationship with THB. And it challenges that finding only on the legal basis that, as a matter of law AFG lacked the requisite 'tangible expectancy' in retaining the THB relationship, to meet the requirements of the corporate opportunity doctrine. Specifically, the contention is that in the highly competitive insurance industry in which they were engaged, AFG had no tangible expectancy that it could indefinitely retain the usurped THB relationship, so that to usurp it violated no fiduciary duty. 11 Appellant's Br. at 18, 31-36. 55 To the extent Rothenberg's contention is that the lack of tangible expectancy, hence of corporate opportunity, in AFG's maintenance of the THB relationship was established as a matter of law on the evidence of record, we disagree. Rothenberg relies principally upon S.W. Scott & Co., Inc. v. Scott, 186 A.D. 518, 174 N.Y.S. 583 (1919), for the proposition that in a highly competitive insurance brokerage business such as that involved in this case, there can be no tangible expectancy in the indefinite continuation of such relationships. We do not understand Scott to lay down any such general rule for the insurance--or any other concededly competitive--industry. Scott did reject a breach of fiduciary duty claim based upon allegations of improper solicitations by a corporate officer of his employer's insurance clients. But, it did not do so on the basis that a tangible expectancy could never exist in the insurance industry because of its highly competitive nature. Special relationships giving rise to the requisite expectancies may of course arise even in highly competitive business contexts. In Scott, no such special relationship was suggested; the only expectancy of continued corporate opportunity was whatever could be inferred from general business practices, and in that highly competitive business, those did not rise to the level of tangible expectancy. See Abbott Redmont, 475 F.2d at 88-89 (so distinguishing Scott from case involving diversion of corporate opportunity by former employee who was, as to that particular opportunity, the sole competitor). 56 We therefore reject Rothenberg's contention that Rothenberg's usurpation of the THB relationship could not, as a matter of law, constitute a breach of fiduciary duty. We do not, however, hold to the contrary that as a matter of law it did. Whether it did or did not depends upon whether, as a matter of fact, the requisite expectancy existed by virtue of any special relationship that may have developed between AFG and THB. Presumably because he had concluded to base liability upon breach of implied covenant, the magistrate judge did not address that factual issue--certainly not as directly as was needed, Rothenberg having raised the issue. 57 On the present record, this remains an open, unresolved issue of fact to whose resolution in further proceedings we will return. 58
59 Invoking the requirement that to recover damages for lost earnings on a breach of fiduciary duty claim one must prove with certainty that any losses sustained were caused by the breaches alleged, see Stoeckel, 170 A.D.2d at 417-18, 566 N.Y.S.2d at 626, Rothenberg contends that there is not such proof in this record. Specifically, he points out that, as the magistrate judge recognized, there was no direct evidence that Rothenberg ever solicited any of AFG's insurance broker clients during his employment by AFG. And, he further points out that the magistrate judge made no specific finding of the requisite causal link between any of the breaches of fiduciary duty that he did find and any of the broker of record transfers upon which the damages award was based. 60 Against this conceded lack of any direct evidence of pretermination breach by solicitation and of any specific breach-damage causation findings, there are, however, some countervailing intimations of what might have been found had not the magistrate judge concluded that liability could more soundly be based upon breach of an implied covenant. In opting to give judgment on that basis, the magistrate judge did not affirmatively find the required causal link not present with respect to the fiduciary duty claim, but only that it could more confidently be found with respect to the implied covenant claim. And, though he declined in the absence of direct evidence to find any pre-termination solicitation of AFG clients by Rothenberg, the magistrate judge opined that from the circumstantial evidence before him he could reasonably draw the inference that prior to his departure from AFG, Rothenberg solicited the business of at least some of its clients. Beyond these intimations of what might have been found had not the magistrate judge erroneously concluded that it was not needed, there are also some critical unchallenged findings that at least point in the direction of the required causal link. These include the findings that while still employed by AFG, Rothenberg had Susan Burnham actually effect some of the broker of record transfers at issue; that either Rothenberg, or Burnham at his direction, or both, took with them to TMI AFG production records and client expiration lists that could aid in soliciting such transfers; and that within thirteen months after his departure from AFG, Rothenberg at TMI acquired some of the former AFG insurance broker business for whose loss damages were awarded. 61 From these findings and near-findings, AFG and Herman in effect invite us to draw the necessary inferences that the magistrate judge intimated might be drawn and on that basis affirm the judgment on this alternative ground. There is enough of substance in the possibility that we have given it serious consideration. In the end, however, we conclude that to justify even partial affirmance on this alternative basis would require an improper incursion by this court into first-instance fact-finding. Cf. Anderson v. City of Bessemer City, 470 U.S. 564, 573-74, 105 S.Ct. 1504, 1511-12, 84 L.Ed.2d 518 (1985) (emphasizing, in discussing clearly erroneous standard of review, impropriety of appellate incursions into fact-finding function of trial courts). 62 This does not, however, lead to the opposite conclusion urged by Rothenberg--that because the present record does not permit affirmance on this alternative basis, it should now be ruled out as a possible basis for any recovery of damages. We believe another course is proper. 63 Our review of the record persuades us that the magistrate judge failed, for the reason suggested, to give the fiduciary duty claim the full consideration to which AFG and Herman are entitled. They had pleaded and pursued it throughout the district court proceedings as an alternative basis for recovery of the monetary relief they claimed. They have properly continued as appellees in this court to pursue it as an alternative basis for relief. They are therefore entitled to have the claim thoroughly considered in the first instance--as it has not yet been--in the district court. Accordingly, in exercise of our appellate power under 28 U.S.C. § 2106 to remand [a] cause and ... require such further proceedings to be had as may be just under the circumstances, we will remand the fiduciary duty claim for consideration under instructions to be given.