## Facts

- Kids International Corporation (“Kids”) was a wholesale children’s apparel company controlled by its chairman and controlling stockholder, Albert Nasser.
- Gila Dweck served as Kids’ CEO, a director, and a 30% stockholder; Kevin Taxin was Kids’ president; Bruce Fine was Kids’ CFO and corporate secretary.
- While still serving as Kids fiduciaries, Dweck and Taxin secretly formed competing wholesalers: Success Apparel LLC (owned 80% by Dweck and 20% by Taxin) and later Premium Apparel Brands LLC (wholly owned by Dweck).
- Success and Premium competed directly with Kids and, among other conduct found at trial, used Kids’ employees, office space, letters of credit, customer relationships, and goodwill to operate.
- The competing entities obtained apparel licenses and lines that the court found to be within Kids’ business and capacity, and that would have been available to Kids absent diversion.
- Nasser, as controller, caused Kids to pay consulting fees to entities affiliated with him; the court found a portion of those fees unjustified.
- After a long-running dispute following the parties’ business breakup, the Court of Chancery held a trial and issued a post-trial memorandum opinion determining liability and awarding equitable and monetary relief, including accountings and disgorgement.

## Issues

1. Whether Dweck and Taxin, as current officers/directors, breached the duty of loyalty by secretly operating competing businesses and diverting corporate opportunities and resources.
2. Whether Fine breached fiduciary duties by knowingly facilitating or concealing the competing ventures and related diversions.
3. Whether Nasser, as controlling stockholder and chairman, was liable for unjust enrichment or fiduciary breaches by causing Kids to pay unjustified consulting fees to his affiliates.
4. What remedies were warranted, including lost profits, reimbursement of improper expenses, disgorgement, and accountings.

## Decision

- The court held that Dweck and Taxin breached their fiduciary duties of loyalty by forming and operating Success and Premium while still fiduciaries of Kids and by usurping Kids’ corporate opportunities and using Kids’ assets.
- The court held Fine liable for knowingly participating in and enabling the loyalty breaches.
- The court held Nasser liable to Kids for unjustified consulting fees paid to his affiliates.
- The court awarded Kids monetary relief against the “Dweck Group” totaling \$9,365,191 for lost profits from misappropriated opportunities and improper personal expenses charged to Kids, and awarded \$3,864,583 against Nasser for unjustified consulting fees.
- The court ordered accountings and, after further proceedings, imposed additional monetary adjustments, including additional liability for the Dweck Group and additional liability for Nasser.

## Legal Principles

- Corporate officers and directors owe a duty of loyalty that prohibits secretly competing with the corporation while still serving as fiduciaries.
- The corporate opportunity doctrine bars fiduciaries from diverting to themselves business opportunities that fall within the corporation’s line of business and that the corporation is able to pursue.
- Using corporate employees, facilities, credit arrangements, relationships, or goodwill to operate a competing venture constitutes a loyalty breach and supports disgorgement and lost-profits remedies.
- An officer who knowingly participates in or helps conceal another fiduciary’s loyalty breach may be personally liable for breach of fiduciary duty.
- Controlling stockholders are subject to equitable scrutiny for self-interested extraction of corporate value; unjustified payments to controller affiliates can result in disgorgement to the corporation.
- Equity may grant monetary relief measured by lost profits and improper benefits, and may require accountings to determine and adjust the final amounts owed.

## Conclusion

The Court of Chancery found that senior managers breached the duty of loyalty by running competing businesses using corporate opportunities and resources, while the controlling stockholder separately violated fiduciary constraints through unjustified affiliate fees; the court awarded disgorgement and lost-profits damages, required accountings, and entered money judgments designed to return diverted value to the corporation.


Dweck v. Nasser, 2012 WL 161590 (Del. Ch. Jan. 18, 2012)