## Facts

- Many Amazing Ideas, Inc. (MAI), controlled by Miryoung (“Joy”) Lee, manufactured a toy called “Grip Ball.”
- Paliafito America, Inc. (Paliafito) paid MAI $1 million for the exclusive right to distribute Grip Ball in the United States.
- Paliafito retained Select Creations, Inc. (Select) as a marketing and sales consultant because Paliafito lacked its own sales force.
- Select, acting within its assignment from Paliafito, arranged for Forman Marketing & Sales Corp. (Forman), led by Stephen Composto, to sell Grip Ball to mass retailers.
- Paliafito paid commissions to Select and Forman for Grip Ball sales efforts.
- After several months, MAI, Select, and Forman began discussions about removing Paliafito from the distribution chain so that MAI would supply retailers directly while still using Select and Forman for sales work.
- In a meeting not disclosed to Paliafito, MAI told Select and Forman that MAI had filed suit to end its relationship with Paliafito and instructed them to “act accordingly.”
- While commissions from Paliafito continued, Forman and Composto allegedly participated in meetings and communications with MAI and Select about shifting retailer accounts away from Paliafito, including accounts involving Toys “R” Us.
- The record included allegations that Forman met with Lee without Paliafito’s knowledge, discussed terms that would undercut Paliafito’s position, failed to inform Paliafito about bypass discussions, joined sales meetings excluding Paliafito, and was told MAI would pay Forman amounts Paliafito owed.
- In the broader litigation (captioned as Select v. Paliafito), Paliafito asserted third-party claims against Forman and Composto for breach of fiduciary duty and for tortious interference with Paliafito’s contractual and prospective economic relationship with Toys “R” Us, and the parties filed cross-motions for summary judgment on those claims.

## Issues

1. Whether Forman and Composto, retained by Select to sell Grip Ball, were subagents of Paliafito and therefore owed Paliafito fiduciary duties, including undivided loyalty.
2. Whether Forman’s and Composto’s undisclosed cooperation with MAI and Select to bypass Paliafito constituted a breach of fiduciary duty as a matter of law on summary judgment.
3. Whether that same conduct could support liability for tortious interference with Paliafito’s contractual and prospective economic relationship with Toys “R” Us under Wisconsin law.

## Decision

- The court held that Forman was Select’s agent in performing the sales function and, because Select was Paliafito’s agent and Paliafito controlled Forman’s Grip Ball activities, Forman and Composto were subagents of Paliafito.
- The court held that, as subagents, Forman and Composto owed Paliafito the fiduciary duty of undivided loyalty.
- The court granted Paliafito partial summary judgment on liability for breach of fiduciary duty, concluding the record showed disloyal conduct while the agency relationship continued.
- The court denied the Forman defendants’ motion for summary judgment on Paliafito’s fiduciary-duty claim.
- The court granted Paliafito partial summary judgment on liability for tortious interference with Paliafito’s contractual and prospective economic relationship with Toys “R” Us, based on intentional and improper interference tied to the same disloyal acts.
- The court denied the Forman defendants’ motion for summary judgment on the tortious-interference claim, and left damages and remaining proceedings for later resolution.

## Legal Principles

- A “subagent” is a person appointed by an agent authorized to do so to perform the principal’s work; a subagent stands in a fiduciary relationship to the principal and is subject to an agent’s liabilities to the principal except those that depend on a direct contract.
- Agency status turns heavily on the principal’s right to control the manner and details of the work; payment arrangements and the parties’ course of dealing may be evidence of control and agency.
- An agent’s fiduciary duty includes undivided loyalty and a duty of disclosure; an agent (or subagent) may not secretly act in competition with the principal or take actions adverse to the principal’s interests during the agency.
- Under Wisconsin law, intentional interference with contract or with prospective economic relations requires (among other elements) an existing contract or a reasonable expectancy, the defendant’s knowledge, intentional interference, causation, and damages; the interference is “improper” when accomplished through independently wrongful conduct.
- A corporate officer who personally participates in a tort may be liable for that tort even when acting on behalf of the corporation.
- Summary judgment is appropriate when there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law.

## Conclusion

In this segment of the Grip Ball distribution litigation, the court treated Forman and its president as Paliafito’s subagents because they carried out Paliafito’s sales function under an arrangement controlled by Paliafito through Select, and it held that their secret cooperation with MAI and Select to cut Paliafito out of distribution breached the duty of loyalty and also supported liability for tortious interference with Paliafito’s Toys “R” Us relationship.


Select Creations, Inc. v. Paliafito America, Inc., 911 F. Supp. 1130 (1995)