Filed: August 3, 2012
Opinion by Judge Ellen Lipton Hollander
Held: State law claims related to an employment agreement's confidentiality and non-soliciation provisions in the transportation industry are not preempted by the Interstate Commerce Commission Termination Act ("ICCTA") because the Act's preemption provision was created to ensure that the States would not undo federal deregulation with regulation of their own.
Facts: Cowan Systems, LLC ("Employer"), a broker in the transportation industry, filed suit against Jeffrey Shane Ferguson ("Employee"), a former employee, for breach of his employment agreement, and Lipsey Logistics Worldwide, LLC ("Competitor"), also a broker in the industry, for tortious interference with contract, tortious interference with prospective economic advantage, violation of the Maryland Uniform Trade Secrets Act, and civil conspiracy.
Employee entered into an employment agreement with Employer that contained confidentiality and non-solicitation provisions prohibiting him from from ever disclosing Employer's business secrets and from soliciting Employer's customers for one year post-termination. Employee resigned from Employer and began working for Competitor, a direct competitor of Employer's, the next day. Employer alleges that Employee violated his employment agreement by communicating and soliciting Employer's customers on Competitor's behalf before and after his tenure with the company. Employer also claims that both Employee and Competitor are causing an immediate threat to Employer's business.
Competitor filed a motion to dismiss based on the premise that state law claims are preempted the ICCTA which provides in part, "a State...may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier...or any...broker...with respect to the transportation of property." Employer opposed the motion.
Analysis: The USDC for Maryland denied Competitor's motion following the ruling in Aloha Airlines, Inc. v. Mesa Air Group, Inc., No. 07-00007, 2007 WL 842064 (D. Haw. Mar. 19, 2007), which found that an intentional tort claim was not preempted by the Airline Deregulation Act ("ADA"), a federal law in which the Supreme Court has recognized as having a preemption provision with identical scope as that of the preemption provision of the ICCTA. The Aloha Court found that courts have upheld state tort claims against entities subject to the ADA when those claims do not contravene the law's purpose to promote competition in that industry. That Court concluded that to find otherwise would indeed undermine the purpose of the ADA which was to ensure the components of the transportation industry relied upon competitive market forces. It found that the ADA's preemption provision was to prevent the States from superceding federal deregulation with its own regulation.
The Court denied Competitor's motion to dismiss finding that the same principles in the ADA apply to the ICCTA preemption provisions. The purpose of the ICCTA preemption provision was to promote competition within the transportation industry and to free it from state laws and regulations that could interfere with interstate commerce. The fact that Employer's claims against Competitor pertained to pricing information "should not serve to insulate Competitor from liability" because it engages in brokerage services. Congress never intended to shield individual bad actors from "thwarting competitive enterprise."
The full opinion is available in PDF.
Showing posts with label civil conspiracy. Show all posts
Showing posts with label civil conspiracy. Show all posts
Monday, September 17, 2012
Thursday, November 12, 2009
Shenker v. Laureate Education, Inc. (Ct. of Appeals)
Filed November 12, 2009
Opinion by Judge Glenn T. Harrell, Jr.
Held: Where corporate directors exercise non-managerial duties outside the scope of §2-405.1(a) of the Maryland Corporations and Associations Article, such as negotiating the price that shareholders will receive for their shares in a cash-merger after the decision to sell the corporation has already been made, they owe their shareholders common law duties of candor and good faith efforts to maximize shareholder value and shareholders may bring direct claims for breach of those fiduciary duties.
Facts: In 2006 and 2007, Laureate Education, Inc., a publicly-held Maryland corporation, underwent a private acquisition process whereby several directors ("Board Respondents") and private equity investors ("Investor Respondents") purchased Laureate through a cash-out merger transaction.
In June 2006, Laureate's Chairman and CEO Douglas L. Becker informed the Board of Directors that he intended to make an offer to purchase Laureate, at which time the Board created a Special Committee composed of three independent directors, who retained a law firm and financial advisors. The Special Committee approved Becker's second offer to purchase Laureate for $60.50 per share and unanimously recommended that the Board approve the proposed transaction on January 28, 2007.
On January 30, 2007, various Laureate shareholders ("Petitioners") challenged the proposed merger on the grounds that the Board Respondents breached their fiduciary duty, that they conspired to breach those duties, and that they and the Investor Respondents aided and abetted that breach.
The Circuit Court granted Respondents' motions to dismiss, dismissing the action as an impermissible direct shareholder suit where the Petitioners had "failed to allege a cognizable duty owed them" by Investor Respondents.
In June 2007, Laureate announced that it had accepted an increased offer from Investor Respondents to acquire Laureate at $62 per share by way of a tender offer and second-step merger. The Special Committee's financial advisors again concluded the offer as financially fair, although several of Laureate's institutional shareholders disagreed, and the Board approved the transaction. Petitioners filed a second complaint in the Circuit Court alleging that the Board Respondents breached their fiduciary duties owed to Petitioners and the Circuit Court again dismissed the claims.
The Circuit Court held that a direct action against corporate directors for alleged violations of fiduciary duties is unavailable in Maryland because §2-405.1(g) forecloses exactly these types of claims. Petitioners appealed to the Court of Special Appeals, which affirmed the Circuit Court's dismissal, holding that §2-405.1(g) bars all direct shareholder claims and that any claims by shareholders against directors for breach of fiduciary duties must be brought derivatively on behalf of the corporation.
Analysis: The Court of Appeals disagreed with the Circuit Court and the Court of Special Appeals that §2-405.1(a) provides the only source of duties owed by corporate directors and that §2-405.1(g) bars all direct shareholder claims against those corporate directors for breach of their fiduciary duties. The Court held that such conclusions are erroneous and shareholders may indeed bring direct suits against corporate directors for breach of common law duties of candor and good faith efforts in particular circumstances, such as in the context of a cash-out merger transaction.
The Court stated that directors and officers owe a duty of care to the corporation and its shareholders under §2-405.1(a). Petitioners conceded that §2-405.1(a) governed the sole source of directorial duties in instances that involve the management of the business and affairs of the corporation. However, Petitioners argued, additional common law duties are triggered once a "threshold decision to sell the corporation has been made and which concern only matters personal to the shareholders." The Court agreed, holding that directors of Maryland corporations owe fiduciary duties of candor and maximization of shareholder value to their shareholders beyond those enumerated in §2-405.1(a) made outside the purely managerial context, such as when faced with an inevitable or highly likely change-of-control situation, and at least in the context of negotiating the amount shareholders will receive in a cash-out merger.
In the context of a cash-out merger, the Court stated, directors assume a different role than solely "managing the business and affairs of the corporation." The Court cited the pivotal Delaware case Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) numerous times in support of its holding that duties concerning the management of the corporation's affairs change after the decision is made to sell the corporation. Directors act as fiduciaries on behalf of the shareholders in negotiating a share price that shareholders will receive. The Court also stated that a 1997 opinion by the Maryland Attorney General suggests that the General Assembly did not seek to occupy the entire field of directorial duties owed by corporate directors in enacting §2-405.1(a), but instead intended to codify the duty of care owed by directors in exercising their managerial duties.
In addition to its holding regarding directors' fiduciary duties to shareholders in particular situations, the Court also held that the Court of Special Appeals erred in holding that §2-405.1(g) bars all shareholder direct claims. Claims for breach of common law fiduciary duties of candor and maximization of shareholder value may be brought directly by shareholders despite the language of §2-405.1(g). The Court held that Petitioners in this case were not restricted to derivative claims and could pursue direct claims for breach of fiduciary duty because the shareholders were owed direct fiduciary duties from the Board Respondents. In support of this holding, the Court noted that the injury alleged here, that shareholders received too low a value for their shares in a cash-out merger, was an injury suffered solely by the shareholders and not Laureate as a corporation. Laureate's interests would not be implicated by the price received by shareholders, nor would it suffer harm as a result of the price.
The Court agreed with the Court of Special Appeals and rejected the civil conspiracy claims, holding that "a defendant may not be adjudged liable for civil conspiracy unless that defendant was legally capable of committing the underlying tort alleged."
The Court also affirmed the Court of Special Appeals in rejecting the aiding and abetting claims, holding that the actions of the Investor Respondents were not out of the normal course of business practices.
The full opinion is available in PDF.
Opinion by Judge Glenn T. Harrell, Jr.
Held: Where corporate directors exercise non-managerial duties outside the scope of §2-405.1(a) of the Maryland Corporations and Associations Article, such as negotiating the price that shareholders will receive for their shares in a cash-merger after the decision to sell the corporation has already been made, they owe their shareholders common law duties of candor and good faith efforts to maximize shareholder value and shareholders may bring direct claims for breach of those fiduciary duties.
Facts: In 2006 and 2007, Laureate Education, Inc., a publicly-held Maryland corporation, underwent a private acquisition process whereby several directors ("Board Respondents") and private equity investors ("Investor Respondents") purchased Laureate through a cash-out merger transaction.
In June 2006, Laureate's Chairman and CEO Douglas L. Becker informed the Board of Directors that he intended to make an offer to purchase Laureate, at which time the Board created a Special Committee composed of three independent directors, who retained a law firm and financial advisors. The Special Committee approved Becker's second offer to purchase Laureate for $60.50 per share and unanimously recommended that the Board approve the proposed transaction on January 28, 2007.
On January 30, 2007, various Laureate shareholders ("Petitioners") challenged the proposed merger on the grounds that the Board Respondents breached their fiduciary duty, that they conspired to breach those duties, and that they and the Investor Respondents aided and abetted that breach.
The Circuit Court granted Respondents' motions to dismiss, dismissing the action as an impermissible direct shareholder suit where the Petitioners had "failed to allege a cognizable duty owed them" by Investor Respondents.
In June 2007, Laureate announced that it had accepted an increased offer from Investor Respondents to acquire Laureate at $62 per share by way of a tender offer and second-step merger. The Special Committee's financial advisors again concluded the offer as financially fair, although several of Laureate's institutional shareholders disagreed, and the Board approved the transaction. Petitioners filed a second complaint in the Circuit Court alleging that the Board Respondents breached their fiduciary duties owed to Petitioners and the Circuit Court again dismissed the claims.
The Circuit Court held that a direct action against corporate directors for alleged violations of fiduciary duties is unavailable in Maryland because §2-405.1(g) forecloses exactly these types of claims. Petitioners appealed to the Court of Special Appeals, which affirmed the Circuit Court's dismissal, holding that §2-405.1(g) bars all direct shareholder claims and that any claims by shareholders against directors for breach of fiduciary duties must be brought derivatively on behalf of the corporation.
Analysis: The Court of Appeals disagreed with the Circuit Court and the Court of Special Appeals that §2-405.1(a) provides the only source of duties owed by corporate directors and that §2-405.1(g) bars all direct shareholder claims against those corporate directors for breach of their fiduciary duties. The Court held that such conclusions are erroneous and shareholders may indeed bring direct suits against corporate directors for breach of common law duties of candor and good faith efforts in particular circumstances, such as in the context of a cash-out merger transaction.
The Court stated that directors and officers owe a duty of care to the corporation and its shareholders under §2-405.1(a). Petitioners conceded that §2-405.1(a) governed the sole source of directorial duties in instances that involve the management of the business and affairs of the corporation. However, Petitioners argued, additional common law duties are triggered once a "threshold decision to sell the corporation has been made and which concern only matters personal to the shareholders." The Court agreed, holding that directors of Maryland corporations owe fiduciary duties of candor and maximization of shareholder value to their shareholders beyond those enumerated in §2-405.1(a) made outside the purely managerial context, such as when faced with an inevitable or highly likely change-of-control situation, and at least in the context of negotiating the amount shareholders will receive in a cash-out merger.
In the context of a cash-out merger, the Court stated, directors assume a different role than solely "managing the business and affairs of the corporation." The Court cited the pivotal Delaware case Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) numerous times in support of its holding that duties concerning the management of the corporation's affairs change after the decision is made to sell the corporation. Directors act as fiduciaries on behalf of the shareholders in negotiating a share price that shareholders will receive. The Court also stated that a 1997 opinion by the Maryland Attorney General suggests that the General Assembly did not seek to occupy the entire field of directorial duties owed by corporate directors in enacting §2-405.1(a), but instead intended to codify the duty of care owed by directors in exercising their managerial duties.
In addition to its holding regarding directors' fiduciary duties to shareholders in particular situations, the Court also held that the Court of Special Appeals erred in holding that §2-405.1(g) bars all shareholder direct claims. Claims for breach of common law fiduciary duties of candor and maximization of shareholder value may be brought directly by shareholders despite the language of §2-405.1(g). The Court held that Petitioners in this case were not restricted to derivative claims and could pursue direct claims for breach of fiduciary duty because the shareholders were owed direct fiduciary duties from the Board Respondents. In support of this holding, the Court noted that the injury alleged here, that shareholders received too low a value for their shares in a cash-out merger, was an injury suffered solely by the shareholders and not Laureate as a corporation. Laureate's interests would not be implicated by the price received by shareholders, nor would it suffer harm as a result of the price.
The Court agreed with the Court of Special Appeals and rejected the civil conspiracy claims, holding that "a defendant may not be adjudged liable for civil conspiracy unless that defendant was legally capable of committing the underlying tort alleged."
The Court also affirmed the Court of Special Appeals in rejecting the aiding and abetting claims, holding that the actions of the Investor Respondents were not out of the normal course of business practices.
The full opinion is available in PDF.
Monday, August 3, 2009
Glynn v. EDO Corp. (Maryland U.S.D.C.)
Opinion by Judge J. Frederick Motz
Filed July 23, 2009
Facts: Glynn sold assets of his company to EDO and signed a non-disclosure and confidentiality agreement and restrictive covenants. He went to work for EDO and worked with one James Martin. EDO ultimately discharged both Glynn and Martin who formed companies that began to compete against EDO.
Glynn brought this action against EDO alleging retaliation in violation of the False Claims Act, 31 U.S.C. § 3730 et seq., and wrongful termination. EDO filed counterclaims against Glynn and his wholly-owned LLC asserting numerous state law causes of action arising from Glynn’s alleged actions during and after his employment with EDO's corporate predecessor, including breach of contract, breach of fiduciary duty, misappropriation of trade secrets, conversion, defamation, tortious interference with advantageous relations, unjust enrichment, and civil conspiracy. While styled as a "cross-claim," EDO asserted similar claims against Martin.
Martin was not a resident of Maryland. He was served while in Maryland to file, pro se, a request for an extension of time to challenge EDO's assertion of the Court's ability to exercise personal jurisdiction over him.
Held:
1. Claim for conversion based upon alleged conversion “proprietary documents, employee information, technology design and schematics, contact lists, vendor and pricing information, and other trade secrets and non-trade secret proprietary and confidential information” are based on the misappropriation of EDO's information. Hence, such claims are subject to dismissal because such claims are preempted by the New Hampshire Uniform Trade Secrets Act (“NHUTSA”). Claims for conversion of physical property such as a desk or a chair is not preempted.
2. A claim for conversion by spending company time on matters for the company's competitors is also subject to dismissal because an employee's conduct on company time is not in the nature of a property or right which may be the subject of conversion.
3. EDO asserted that the alleged wrongful acts of Glynn and his company allowed them to “gain a head start” in developing and producing products, resulted in benefits such as profits, earnings, patent royalties, and commissions. Thus, EDO made a claim for unjust enrichment. Judge Motz denied the motion to dismiss of the unjust enrichment claim, holding that it was “premised on wrongdoing over and above” the misappropriation or misuse of EDO's information.
4. The Court denied the motion to dismiss claims of civil conspiracy because the allegations that Glynn et al. agreed and conspired to “misappropriate, defraud, and convert [EDO]’s proprietary and confidential information and trade secrets” and “unlawfully commit unfair competition and interference with [EDO]'s contractual and prospective business relationships” was sufficient to state a claim “where the elements of the claim require[d] some allegation or factual showing in addition to that which [formed] the basis for [the] claim of misappropriation of a trade secret.”
5. As to Martin, there were insufficient facts upon which to assert either general or long-arm jurisdiction. Martin's appearance in Maryland to request an extension of time to raise the jurisdictional defense does not constitute an implied waiver of the defense.
The opinion has been recommended for publication and the full opinion is available in PDF.
Filed July 23, 2009
Facts: Glynn sold assets of his company to EDO and signed a non-disclosure and confidentiality agreement and restrictive covenants. He went to work for EDO and worked with one James Martin. EDO ultimately discharged both Glynn and Martin who formed companies that began to compete against EDO.
Glynn brought this action against EDO alleging retaliation in violation of the False Claims Act, 31 U.S.C. § 3730 et seq., and wrongful termination. EDO filed counterclaims against Glynn and his wholly-owned LLC asserting numerous state law causes of action arising from Glynn’s alleged actions during and after his employment with EDO's corporate predecessor, including breach of contract, breach of fiduciary duty, misappropriation of trade secrets, conversion, defamation, tortious interference with advantageous relations, unjust enrichment, and civil conspiracy. While styled as a "cross-claim," EDO asserted similar claims against Martin.
Martin was not a resident of Maryland. He was served while in Maryland to file, pro se, a request for an extension of time to challenge EDO's assertion of the Court's ability to exercise personal jurisdiction over him.
Held:
1. Claim for conversion based upon alleged conversion “proprietary documents, employee information, technology design and schematics, contact lists, vendor and pricing information, and other trade secrets and non-trade secret proprietary and confidential information” are based on the misappropriation of EDO's information. Hence, such claims are subject to dismissal because such claims are preempted by the New Hampshire Uniform Trade Secrets Act (“NHUTSA”). Claims for conversion of physical property such as a desk or a chair is not preempted.
2. A claim for conversion by spending company time on matters for the company's competitors is also subject to dismissal because an employee's conduct on company time is not in the nature of a property or right which may be the subject of conversion.
3. EDO asserted that the alleged wrongful acts of Glynn and his company allowed them to “gain a head start” in developing and producing products, resulted in benefits such as profits, earnings, patent royalties, and commissions. Thus, EDO made a claim for unjust enrichment. Judge Motz denied the motion to dismiss of the unjust enrichment claim, holding that it was “premised on wrongdoing over and above” the misappropriation or misuse of EDO's information.
4. The Court denied the motion to dismiss claims of civil conspiracy because the allegations that Glynn et al. agreed and conspired to “misappropriate, defraud, and convert [EDO]’s proprietary and confidential information and trade secrets” and “unlawfully commit unfair competition and interference with [EDO]'s contractual and prospective business relationships” was sufficient to state a claim “where the elements of the claim require[d] some allegation or factual showing in addition to that which [formed] the basis for [the] claim of misappropriation of a trade secret.”
5. As to Martin, there were insufficient facts upon which to assert either general or long-arm jurisdiction. Martin's appearance in Maryland to request an extension of time to raise the jurisdictional defense does not constitute an implied waiver of the defense.
The opinion has been recommended for publication and the full opinion is available in PDF.
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