Facts
- Personal Touch Holding Corp., a closely held home-healthcare company, was co-founded by Felix Glaubach and Robert Marx; Glaubach served as a substantial stockholder, director, and President.
- The company sought additional office space and pursued purchase of a Jamaica, New York property (the “AAA Building”), initially negotiating to buy it for approximately $1 million.
- While aware of the company’s interest, Glaubach pursued the AAA Building for himself, directing an assistant to contact the seller in a manner that suggested the inquiry was for the company.
- Glaubach shifted communications to his personal email to conceal his efforts and ultimately purchased the AAA Building personally for $1.8 million.
- After board tensions escalated, Glaubach disclosed he owned the building and offered to lease it to the company.
- The company terminated Glaubach’s employment agreement and removed him as President, citing usurpation of a corporate opportunity and other alleged misconduct.
- The company sued for (i) a declaration validating his removal, (ii) damages for fiduciary breaches, and (iii) disgorgement of compensation under New York’s faithless-servant doctrine; Glaubach asserted counterclaims.
Issues
- Whether Glaubach breached the fiduciary duty of loyalty by taking for himself the opportunity to acquire the AAA Building.
- Whether the company validly removed Glaubach as President and was entitled to declaratory relief confirming that removal.
- What monetary relief, if any, the company proved for Glaubach’s fiduciary breaches.
- Whether New York’s faithless-servant doctrine required disgorgement of three years of Glaubach’s compensation.
- Whether Glaubach’s counterclaims warranted relief.
Decision
- The court held Glaubach breached his fiduciary duty of loyalty, including by usurping the corporate opportunity to acquire the AAA Building.
- The court entered a declaratory judgment that Glaubach was validly removed as President.
- The court awarded the company $2,735,000 in damages for proven fiduciary breaches.
- The court denied compensation disgorgement under New York’s faithless-servant doctrine.
- The court rejected several additional fiduciary-duty theories asserted by the company and denied relief on Glaubach’s counterclaims.
Legal Principles
- A corporate fiduciary may not take for personal benefit a business opportunity that (i) the corporation can financially exploit, (ii) falls within its line of business (interpreted broadly and flexibly), (iii) is subject to the corporation’s interest or expectancy, and (iv) would place the fiduciary in conflict with corporate duties; the factors are weighed collectively.
- Secrecy, misleading use of corporate channels, and concealment of personal pursuit of an opportunity support a finding of disloyal self-dealing and corporate-opportunity usurpation.
- Declaratory relief confirming removal from office may be warranted when the factual record establishes disqualifying misconduct consistent with the governing corporate authority.
- Fiduciary-duty damages are available for proven harm caused by disloyal conduct, but liability and remedies remain claim-specific.
- Compensation forfeiture under the faithless-servant doctrine is an exceptional remedy and may be denied even where serious fiduciary breaches are found.
Conclusion
The court found that a founder-director violated the duty of loyalty by secretly acquiring property the company had pursued, upheld his removal as President, and awarded substantial damages, while declining to impose the extreme remedy of multi-year compensation disgorgement and rejecting unproven allegations and counterclaims.