## Facts

- JVIC hired W. Clayton Rash to start and manage its Tulsa division under a written employment agreement (1999–2001) with a base salary, profit-based bonus, and termination equity bonus, governed by Texas law.
- After the written term ended, Rash continued as Tulsa manager until 2004 without a written extension.
- While managing the Tulsa division, Rash held undisclosed ownership interests in outside businesses, including Total Industrial Plant Services, Inc. (TIPS), a scaffolding company.
- TIPS bid on scaffolding work for JVIC–Tulsa projects; Rash evaluated bids and frequently selected TIPS as a subcontractor.
- JVIC began its own scaffolding operation, but the Tulsa division under Rash did not use JVIC’s in-house scaffolding services.
- From 2001 to 2004, JVIC paid TIPS more than $1 million.
- Rash resigned in July 2004 and later sought compensation (including bonuses) allegedly owed for his continued service after 2001.
- JVIC counterclaimed for breach of contract, breach of duty of loyalty, breach of fiduciary duty, and sought equitable fee forfeiture of Rash’s compensation.

## Issues

1. Whether, under Texas law, Rash acted as JVIC’s agent and owed a fiduciary duty requiring disclosure of his ownership interest in a subcontractor that also competed with JVIC.
2. Whether equitable fee forfeiture of compensation is available for breach of fiduciary duty and should be reconsidered if a fiduciary breach is found.
3. Whether the Texas statute of frauds barred enforcement of compensation obligations after expiration of the written 1999–2001 employment contract.

## Decision

- Reversed the judgment as a matter of law entered against JVIC on its fiduciary-duty claim and remanded for a determination of damages.
- Remanded the fee-forfeiture issue for further consideration in light of the reinstated fiduciary-duty claim.
- Affirmed the rejection of JVIC’s statute-of-frauds defense to Rash’s post-2001 compensation claims.

## Legal Principles

- Under Texas law, an agent owes the principal a fiduciary duty that includes affirmative duties of candor and full disclosure regarding matters affecting the principal’s business, including conflicts created by undisclosed ownership interests.
- A managerial employee entrusted with significant discretion over a business unit’s operations and contracting decisions may qualify as an agent for fiduciary-duty purposes.
- Contract-based duty-of-loyalty theories and fiduciary-duty theories are distinct; a loyalty verdict does not categorically preclude a separate fiduciary-duty claim, though courts must prevent double recovery.
- Texas recognizes equitable fee forfeiture as a potential remedy for serious breaches of fiduciary duty to protect relationships of trust; the remedy is evaluated using factors such as the breach’s seriousness, timing, duration, and effect on the employment relationship.
- Continued employment after expiration of a fixed-term written agreement may be treated as an implied, terminable arrangement (including month-to-month), which can fall outside the statute of frauds because it is performable within one year.

## Conclusion

The court held that a divisional manager functioning as an agent had a fiduciary duty to disclose an ownership interest in a subcontractor whose work he steered to his own benefit, reversed the dismissal of the fiduciary-duty claim, required reconsideration of equitable fee forfeiture, and upheld enforcement of post-term compensation claims notwithstanding the statute of frauds.


Rash v. J.V. Intermediate, Ltd., 498 F.3d 1201 (10th Cir. 2007)