Key Business Court Decisions

Your Project Manager May Not Be A Fiduciary

Even though an employee may be the manager of all of a company’s projects, including being in charge of payments to vendors and interacting with customers, it does not necessarily mean that he owes any fiduciary duties to the company.  Construction Managers, LLC, et al. v. Amory, 2019 NCBC 31 (J. McGuire).  As a result, a project manager or upper management employee who inflicts significant harm on the company may not be liable for a breach of fiduciary duty or a constructive fraud claim.

Plaintiffs are a series of interrelated corporate entities who bid on and built facilities for the Department of Veterans Affairs (“VA”) and, upon completion, leased the facilities back to the VA.  Defendant was initially hired to work for Construction Managers, LLC (“CM”), the entity that bid on the various VA projects.  Later, Defendant was transferred to Acts Contracting, LLC (“Acts Contracting”), the entity which actually entered into the contract with the VA.  Defendant became an officer of Acts Contracting, and thereafter was given the responsibility of project manager for the entity that actually constructed each new facility, Plaintiff Construction Managers, Inc. of Goldsboro (“CMI”).  While working as the project manager, Defendant allegedly created a scheme that defrauded CMI and Acts Contracting out of money for Defendant’s benefit. Shortly thereafter Defendant left Acts Contracting , allegedly taking numerous trade secrets to its competitor.  Upon learning of Defendant’s trade secret theft and the financial scheme, Plaintiffs brought suit asserting, inter alia, claims for breach of fiduciary duty and constructive fraud on behalf of CMI. Defendant moved to dismiss CMI’s claims for breach of fiduciary duty and constructive fraud, arguing that he owed no fiduciary duty to CMI. 

The Business Court agreed and dismissed CMI’s claims for breach of fiduciary duty, constructive fraud, and the unfair and deceptive trade practice claim that relied on those two claims.  The Business Court first recognized that both a claim for breach of fiduciary duty and constructive fraud rely upon the named-Plaintiff proving a fiduciary relationship existed between itself and Defendant, which can come about as an operation of law (either because the Defendant was an officer/director of the Plaintiff or by virtue of contract) or based upon the facts of Defendant’s relationship with the named-Plaintiff (i.e., a de facto duty).  Because Defendant was not an officer or director of CMI and lacked any contract with CMI, the Court examined only whether the complaint’s facts supported Defendant being a de facto fiduciary of CMI.  Notwithstanding the fact that Defendant was CMI’s project manager for nealry all of its construction sites (including the sites that were the subject of the financial scheme) and, in such position, had control over the various expenses and financial affairs of each project, the Business Court nonetheless found that the complaint’s allegations fell “well short” of identifying facts necessary to support a de facto fiduciary relationship.  The Business Court noted that a de facto fiduciary arises in situations where the alleged wrongdoer “holds all the cards” and has absolute control over the situation to the detriment of the offended party.  Because CMI’s owners were able to access the financial records of the company, the Business Court found that Defendant did not hold all of the “proverbial cards” and thus no de facto fiduciary relationship existed between Defendant and CMI. 

Based upon this decision, a business would be well served to consider including, as part of its job description and in any employment agreement with an upper-level manager, an acknowledgment hat the person is in a position of trust and confidence with the company and that he/she is acting as a fiduciary when carrying out his or her job duties. 

Additional legal holdings in this decision: 

  • Even if companies are interrelated, the only company that can maintain a trade secret claim is the entity that owns the trade secret. (Opinion, ¶ 44).
  • While a claim for constructive fraud must be pled with particularity by alleging facts and circumstances that both show the relation of trust and describe the transaction by which Defendant took advantage of the position of trust, a plaintiff need not plead with particularity the actual benefit the Defendant obtained to maintain a claim for constructive fraud.  (Opinion, ¶ 71). 
  • A plaintiff can recover damages (including possible attorneys’ fees) resulting from lost time and resources incurred to investigate fraudulent activity, as a plaintiff has a duty to avoid or minimize the consequences of a defendant’s wrongful conduct.  (Opinion, ¶ 76). 
  • A plaintiff may maintain a computer trespass claim under N.C.G.S. § 14‑458 where the defendant uses a computer in a manner exceeding his right or permission (e.g., when the defendant downloads a company’s proprietary and sensitive information), even though the defendant might have had the right or permission to view the information while an employee.  (Opinion, ¶ 87). 

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