Opinion
No. 15–P–1541.
09-30-2016
RENCO CORPORATION v. GAMMASUPPLIES, LLC & others.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
After a jury-waived trial, Renco Corporation (Renco) appeals from a portion of a judgment in which the judge refused to apply the doctrine of lost corporate opportunity to a former employee, Suesan Randlett, as a remedy for a breach of a fiduciary duty. On appeal, Renco claims that this refusal was in error, and seeks to have a constructive trust established to remedy the corporate opportunity that Randlett allegedly usurped by producing and selling sterile gloves through GammaSupplies, LLC. We affirm.
The judge found Randlett to have taken $37,865.44 from Renco in excess of her earned compensation in the form of loans and salary advances. The parties do not raise any issue with this finding on appeal.
As the judge found, in 2007, U.S. Pharamcopia (USP), a trade group, adopted USP 797, a validation standard that, effective July, 2010, set forth the process through which a product could be labeled “sterile.” The gloves sold by Renco did not meet the standards of USP 797 at that time.
1. Fiduciary duties of Randlett. “Officers and directors owe a fiduciary duty to protect the interests of the corporation they serve.” Geller v. Allied–Lyons PLC, 42 Mass.App.Ct. 120, 122 (1997). The Supreme Judicial Court has extended this duty to those employees in “a position of trust and confidence.” Chelsea Indus., Inc. v. Gaffney, 389 Mass. 1, 11–12 (1983). It is not disputed that Randlett was in a position of trust, described as Renco President Richard Renehan's “right-hand person.” As such, Randlett breached her fiduciary duty in using her employment at Renco to further her own competing business.
Randlett started at Renco in May, 2007, as a part-time independent contractor, moving her way up to salaried employee in February of 2009. Randlett became the de facto office manager and “Vice President of Operations and Marketing,” though in the corporation's annual report Randlett's name was never included.
In fact, Randlett now supplies a former customer of Renco, Partners Health Care of the North Shore, with validated sterile gloves through GammaSupplies.
As Renco's president, Renehan had actual knowledge of the market for USP 797 sterile gloves, see note 3, supra, as he was contacted by his customer, Partners Health Care of the North Shore (PHC/NS), with an inquiry as to Renco's providing USP 797 compliant gloves. Due to this inquiry, Renehan asked Randlett to prepare a quotation for supplying the sterile gloves. Randlett's knowledge and awareness of the market and PHC/NS's interest in purchasing the gloves stemmed directly from Renehan's knowledge and awareness. When Randlett provided Renehan with the proposal, including a request to take over Renco's subsidiary, RencoMED, Renehan was noncommittal and Randlett took this as a rejection. Soon after, Randlett informed Renehan she was leaving the company.
Randlett informed Renehan that she was leaving Renco “to do fashion work with her daughter,” when in fact she was leaving to pursue GammaSupplies with David Hunter.
Randlett used her employment at Renco to further her ability to pursue GammaSupplies, breaching a fiduciary duty in using her time on the clock for Renco, as well as Renco products, in preparation for going into competition with it. See Augat, Inc. v. Aegis, Inc ., 409 Mass. 165, 172–173 (1991). As the judge found, Randlett “work[ed] at cross-purposes to Renco's interest while still employed by it. [She did this by] funnel[ing] information gleaned from Renco to [David] Hunter about PHC/NS and Renco's negotiations to provide USP 797–compliant gloves to it, as well as when she provided other Renco information of a confidential nature to Hunter and to her sister.”
While the use of Renco time and products for exemplars were a direct breach of her fiduciary duties, Randlett never signed a noncompetition or nondisclosure agreement for her employment with Renco. See id. at 172. At-will employees are free to secretly prepare to plan to compete with their current employer, including taking steps to carry out the plan while still employed; they have no duty to inform the employer of their plans. Ibid. “If an employer wishes to restrict the post-employment competitive activities of a key employee, it may seek that goal through a non-competition agreement.” Ibid. The judge correctly required Randlett to pay back the salary she earned at Renco for the months of April and May of 2010 while using Renco's resources to plan her departure; however, as an at-will employee who did not sign a noncompetition agreement, Randlett's subsequent business venture did not cause a breach of fiduciary duties. Randlett and Hunter properly began business as GammaSupplies, LLC.
2. Doctrine of corporate opportunity. The judge found that Renehan's knowledge of the opportunity, his unrestricted capability to take it, and the lack of resulting harm to Renco makes the doctrine of corporate opportunity inapplicable. We agree.
“The corporate opportunity doctrine is rooted in the principle that corporate directors and officers are bound by their duty of loyalty to subordinate their self-interests to the well being of the corporation. A person who owes a fiduciary duty to a corporation is prohibited from taking, for personal benefit, an opportunity or advantage that belongs to the corporation.” Demoulas v. Demoulas Super Mkts. Inc., 424 Mass. 501, 529 (1997). However, a fiduciary is not entirely prohibited from pursuing such opportunity, but may do so when the corporation has knowledge of the opportunity and has declined to pursue it. Id. at 530.
As the company's president, Renehan had actual knowledge of the market for USP 797 sterile gloves due to his position and the multiple inquiries from PHC/NS as to Renco's providing USP 797 compliant gloves. In fact, Renehan was contacted by PHC/NS three separate times over a period of more than one and one-half years (twenty months) to inquire about price quotations for such compliant gloves. Renehan's actual knowledge of the USP 797 validation and the market for compliant gloves, as well as PHC/NS's interest in purchasing the validated gloves from Renco are sufficient to establish Renco's knowledge of the corporate opportunity in question. Because there was sufficient knowledge to render disclosure of the opportunity unnecessary, Randlett neither needed Renehan's nor Renco's permission to pursue the opportunity externally through GammaSupplies.
Renco's reliance on Hanover Ins. Co. v. Sutton, 46 Mass.App.Ct. 153 (1999), is misplaced. Renehan approached Randlett to look into and produce a quote for entering into the USP 797 market and supplying PHC/NS with the verified sterile gloves. In Hanover Ins. Co., however, the corporate opportunity usurped by the defendants was not within the actual knowledge of the plaintiff, nor was the opportunity presented by the plaintiff to the defendants. Id. at 156–159, 170–171.
Renco never pursued the USP 797 validation from the time of Randlett's departure from Renco up to the time of the trial. As such, the judge fairly inferred that “Renco was not harmed by such conduct or the subsequent activities of GammaSupplies and its two principals because Renco has never gotten into the same market.”
Despite Randlett's breach of her fiduciary duty to Renco, Renco did not prove any resulting harm from that breach. The disclosure requirement for a fiduciary relies on the concept of fairness, and the fiduciary must prove that their acquiring the opportunity was “fundamental[ly] fair[ ],” and did not cause harm to the corporation. Id. at 529–530. Even if Randlett had the duty as a fiduciary to disclose her venture, Renco did not suffer any harm. Absent harm, no constructive trust need be established as the corporate opportunity doctrine does not apply to Randlett's entering the USP 797 market with GammaSupplies.
Renco's request for attorney's fees and costs is denied.