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The essence of a duty of loyalty claim is the assertion that a corporate officer or director has misused power over corporate property or processes in order to benefit himself or herself rather than advance corporate purposes. At the core of the fiduciary duty is the notion of loyalty—the equitable requirement that, with respect to the property subject to the duty, a fiduciary always must act in a good faith effort to advance the interests of his beneficiary. Most basically, the duty of loyalty proscribes a fiduciary from any means of misappropriation of assets entrusted to his or her management and supervision. The doctrine of corporate opportunity represents one species of the broad fiduciary duties assumed by a corporate director or officer. The doctrine holds that a corporate officer or director may not take a business opportunity for his or her own if: (1) the corporation is financially able to exploit the opportunity; (2) the opportunity is within the corporation's line of business; (3) the corporation has an interest or expectancy in the opportunity; and (4) by taking the opportunity for his or her own, the corporate fiduciary will thereby be placed in a position inimicable to his or her duties to the corporation.
In September 1993, Gila Dweck, Albert Nasser, and Haim Dabah established Kids International Corporation (“Kids”). Nasser agreed to provide 100% of the funding, comprising $8.2 million for acquisition financing plus $1 million in start-up capital. In return, Nasser originally would own 100% of the new company's equity. Once Nasser received payments equal to his original investment plus 10% interest, Nasser would transfer 50% of the equity to Dweck and Haim. Nasser would serve as Chairman of the Board; Dweck and Haim would be in charge of day-to-day management. In 2005, after thirteen years in business together, Gila Dweck and Albert Nasser parted ways after Dweck formed Success and Premium, two new entities that took Kids’ business opportunities and even used Kids’ resources in establishing its presence. Their messy split spawned nearly seven years of litigation. Dweck and Nasser accused each other of breaching their fiduciary duties, and Nasser asserted third-party claims for breach of fiduciary duty against Dweck's colleagues Kevin Taxin, Kids' President, and Bruce Fine, Kids' CFO and corporate secretary.
Did Dweck, Taxin, and Fine breach fiduciary duties owed to Kids?
Dweck was a director and officer of Kids. Taxin was an officer of Kids. In these capacities, they owed a duty of loyalty to Kids. Dweck and Taxin breached their duty of loyalty by diverting what they decided were "new opportunities" to Success and Premium, including license agreements with Bugle Boy, Everlast, John Deere, and Gloria Vanderbilt, Wal-Mart private label business, and Target direct import business. Kids was a profitable enterprise with the financial capability to exploit each of these opportunities. Indeed, Dweck and Taxin used Kids' personnel and resources to pursue each opportunity, demonstrating that Kids just as easily could have pursued the opportunities in its own name. After appropriating the opportunities, Dweck and Taxin operated Success and Premium as if the companies were divisions of Kids, but kept the resulting profits for themselves. By doing so, Dweck and Taxin placed themselves "in a position inimicable to [their] duties to [Kids]."
Dweck also breached her fiduciary duties to Kids when she made Kids reimburse her personal and business expenses between 2002 and 2005. As a Kids fiduciary, Dweck bore the burden at trial of proving that the challenged expenses were legitimate. Dweck failed to meet her burden. Instead, Dweck testified that she "didn't think Mr. Nasser would mind."
Fine was jointly and severally liable with Dweck and Taxin for the Holiday 2005 and Spring 2006 profits. Contrary to Djemal's directives, Fine provided substantial assistance to Dweck and refused to keep Djemal informed about his activities. Fine reported regularly to Dweck about the status of Kids' business and helped Dweck find new premises for Success. Fine helped organize the mass employee departure and oversaw the attempted removal of Kids' property, going so far as to misrepresent to Nasser that he was "Gregory," the driver of the moving truck. As a critical participant in the wrongdoing surrounding Dweck and Taxin's departure from Kids, Fine was jointly and severally liable for the remedy.
Fine further breached his fiduciary duties in relation to Dweck’s personal expenses. As Kids' CFO, Fine owed fiduciary duties to Kids. From 2002 through 2005, Fine co-signed for the reimbursement of Dweck's personal expenses. He admitted at trial that he did not perform any review of Dweck's expenses before co-signing her reimbursement checks. He simply signed off. He did not face a huge backlog, nor was he under time pressure. He had the opportunity to review Dweck's expenses on a periodic basis. He simply chose not to. Although some of Dweck's personal expenses were de minimis, Fine regularly signed off on thousands of dollars of personal expenditures without considering their validity or asking any questions. By doing so, Fine acted in bad faith.
It must be further noted that Dweck could not limit her liability by citing the termination of her relationship with Kids on March 11. Before that point, Dweck breached her own duties as a fiduciary. After that point, Dweck actively conspired with Taxin and Fine, thereby aiding and abetting Taxin and Fine's breaches of fiduciary duty.