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Wednesday, November 11, 2009

Business Conspiracy and Employee's Fiduciary Duties

FACTS: Feddeman & Co offered a group of its employees the opportunity to buy out the main stockholder, creating an employee owned corporation. During the negotiations, the buy-out began to seem unattainable to the employees, so these employees and directors of Feddeman met with a competitor (Langan Associates). The employees discussed the possibility of employment with Langan Associates, and used the threat of resignation as a leverage.

Feddeman then sued Langan and Feddeman's former employees for conspiring to ruin Feddeman's business, usurpation of Feddeman's business opportunities and breach of fiduciary duties.

In order to legally leave Feddeman the employees followed the advice of an attorney, who was also Langan's lawyer.

JURY RULING: An Alexandria Circuit Court jury awarded 3.3 million dollars to Feddeman.

COURT RULING: The judge set aside the 3.3 million dollar verdict in part because the "employee Defendants scrupulously adhered to the advise of counsel as to how to prepare to leave". The case has been appealed to the Supreme Court of Virginia.

SUPREME COURT RULING: The Virginia Supreme Court found that there was not basis to set aside the verdict because defendant employees and defendant directors did more than merely prepare to resign and advise others of a plan to leave. Credible evidence supported the jury determination that the conduct fell below the required standard of good faith and loyalty, and was sufficient to constituted a breach of fiduciary duty. The Court reinstated the 3.3 million dollar verdict.

ACTION ADVISE: When making an important business decision, hire a lawyer that does not have a conflict-of-interest. Conspiring against an employer with a competitor may be considered a breach of good faith and loyalty, as well as a breach of fiduciary duty.

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