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Officers, directors, and employees of a corporation are prohibited from acting in any manner inconsistent with his agency or trust and are at all times bound to exercise the utmost good faith and loyalty in the performance of his duties.
In 1942, Duane Jones, a man of experience in the field of advertising, organized Duane Jones Company, Inc. From the date of its formation, Jones has continued to be the dominating personality and the policy maker of the corporation, which by 1951 had acquired accounts in such number and quality as produced a gross billing of $9,000,000. The corporation income was derived from commissions paid to it in the amount of 15% of the sum spent by the corporation’s customers with advertising media. The corporation service consisted of originating advertising ideas and campaigns satisfactory to its customers, and of arranging for the execution of such campaigns through various media. To effect that service, the corporation referred each of its principal customers to one or more "account executives" in its employ who worked in close co-operation with the customer and were directly responsible for the handling of the account thus serviced. Although an advertiser might commit itself to noncancelable contracts with advertising media, it was generally not bound by any agreement with the advertising agency through which it carried on its advertising. In other words, in the case at hand the corporation’s customers were free at any time to discharge the corporation as its agency; and similarly, the corporation had the right at will to resign any of its accounts. Likewise, the corporation’s employees were not under formal contract to it. The corporation sought damages from the ten individual and two corporate defendants alleged to have been sustained as a result of a conspiracy by defendants to deprive the corporation of its principal customers and its key employees. The lower court affirmed the judgment against eight defendants, but the judgments against two individual defendants were reversed. The corporation and the eight remaining defendants appealed.
Did the evidence support the allegation that defendants participated in a conspiracy related to unfair business practices?
The court of appeals determined that the evidence supported the allegation that defendants participated in a conspiracy related to unfair business practices, and because this decision was not clearly erroneous, the court was not able to disturb the jury's verdict. The former officers and directors and two other key employees of the corporation, while still employed, successfully conspired, in violation of the fiduciary duties of good faith and fair dealing imposed on them by their close relationship with the corporation, to organize and take stock in a new corporation, and to solicit and cause to be solicited and acquired for such rival corporation, many of the corporation’s principal customers and more than half of the corporation’s trained personnel. The evidence established that said defendants met and agreed to take over the business of the corporation, either by purchase of the controlling interest in the corporation or by resignation en masse and the formation of a new agency; that defendants offered to purchase the controlling interest in the corporation and stated that, if the offer were not accepted, they would resign and that the corporation’s customers had been "pre-sold" on the proposed action; that, when negotiations for purchase of the stock terminated unsuccessfully, defendants, officers and directors, submitted their resignations to the corporation; that three of the defendants commenced negotiations leading to the incorporation of a rival advertising agency and that agency commenced operations; that such defendant agency had nine accounts formerly serviced by plaintiff as its customers and employed more than 50% of plaintiff's personnel; that the accounts and personnel were acquired through efforts of the individual defendants during the period when they were employees of the corporation, and that this was done without disclosure to the corporation. Additionally, the court found that the damages awarded were reasonable. The court did reverse the dismissal of the complaint against one individual defendant because the evidence indicated that he was involved in the improper actions. The dismissal of the complaint regarding the other individual defendant was affirmed. The judgment against the corporate defendant was reversed because plaintiff failed to allege improper conduct on the part of the corporate defendant. The judgment was otherwise affirmed.