## Facts

- WahlcoMetroflex, Inc. was a Delaware corporation engaged in industrial manufacturing; Alexander G. Baldwin was a shareholder, director, and the company’s president and CEO.
- The company obtained a bank loan that was personally guaranteed by each of seven shareholders.
- Under the loan arrangement, each shareholder had to submit an annual personal financial statement to the bank by a specified time; if a statement was late, the bank could impose a $200-per-day charge to WahlcoMetroflex.
- Baldwin submitted his personal financial statements in 2001 and 2002.
- Baldwin inadvertently failed to submit his statements for 2003 and 2004, and the bank assessed late charges against WahlcoMetroflex as a result.
- In 2003, WahlcoMetroflex experienced financial difficulties; Baldwin agreed to a significant pay cut.
- In early 2004, while still serving as president and CEO (though with reduced involvement), Baldwin accepted an as-needed consulting position with British Petroleum (BP).
- BP was not a competitor of WahlcoMetroflex, and Baldwin did not divert WahlcoMetroflex customers or corporate opportunities to BP.
- In March 2004, Baldwin resigned from WahlcoMetroflex.
- In 2007, WahlcoMetroflex sued Baldwin based on two categories of conduct: (1) failure to provide the bank-required financial statements and (2) his BP consulting work.
- The case proceeded to a jury trial on, among other claims, breach of fiduciary duty based on the missed financial statements (Count 1) and breach of fiduciary duty based on the BP work (Count 6).
- On Count 1, the jury was instructed that Baldwin could breach his duty of care if “he did not act with care, competence and diligence,” and the jury returned a verdict for WahlcoMetroflex.
- On Count 6, the jury found in Baldwin’s favor.
- A separate nonjury unjust enrichment claim based on the BP work (Count 7) resulted in an award of damages to WahlcoMetroflex.
- Baldwin appealed, challenging the duty-of-care jury instruction on Count 1 and the unjust enrichment judgment on Count 7.

## Issues

1. Whether Delaware law governing a Delaware corporation required a gross-negligence standard for an officer/director duty-of-care claim, making the trial court’s “care, competence and diligence” instruction erroneous and prejudicial.
2. Whether the trial court could enter judgment for unjust enrichment based on the BP consulting work when the unjust enrichment theory rested on the same conduct as a fiduciary-duty claim that the jury rejected.

## Decision

- The court applied Delaware fiduciary-duty law because WahlcoMetroflex was incorporated in Delaware.
- The court held that the jury instruction on the duty of care misstated Delaware law by permitting liability on a negligence-like standard (“care, competence and diligence”) rather than gross negligence.
- Because the incorrect instruction affected the breach element and could have changed the outcome, the verdict for WahlcoMetroflex on Count 1 was vacated.
- The case was remanded for a new trial on Count 1 using the proper Delaware gross-negligence standard.
- The unjust enrichment judgment on Count 7 was vacated because it was based on the same operative facts as the BP-related fiduciary-duty claim (Count 6), and the jury had found no breach on that claim; the unjust enrichment award could not stand as an independent route to recovery on those facts.
- The court rejected WahlcoMetroflex’s argument that Baldwin owed separate fiduciary duties as a shareholder/guarantor independent of his officer/director duties.

## Legal Principles

- A corporation’s state of incorporation supplies the governing law for internal corporate affairs, including fiduciary duties of officers and directors.
- Under Delaware law, an officer’s or director’s breach of the fiduciary duty of care requires gross negligence; ordinary negligence is not enough.
- Gross negligence in this setting entails conduct reflecting reckless indifference to, or deliberate disregard of, stockholders’ interests, or actions outside the bounds of reason.
- A jury instruction that lowers the duty-of-care standard from gross negligence to ordinary negligence is legal error and warrants vacatur when it may have affected the verdict.
- Unjust enrichment is not a substitute for a failed tort-based fiduciary-duty claim when both rest on the same conduct; when the factfinder rejects the underlying duty-based liability, an unjust enrichment recovery based on the same facts is improper.

## Conclusion

The Maine Supreme Judicial Court, applying Delaware law, vacated the jury’s fiduciary-duty verdict based on Baldwin’s late financial statements because the jury was instructed under a negligence-like standard rather than Delaware’s gross-negligence standard, and it remanded for a new trial on that claim; it also vacated the unjust enrichment judgment tied to Baldwin’s BP consulting work because it arose from the same conduct as a fiduciary-duty claim the jury had rejected.


WahlcoMetroflex, Inc. v. Baldwin, 991 A.2d 44 (2010)