Delaware Business Litigation Report

Federal Court Denies Re-Argument In Fiduciary and Contract Breach Case

Damage Recovery Systems, Inc. v. Tucker, No. Civ. 02-1647-SLR, 2005 WL 388596 (D.Del. Feb. 2, 2005). Defendant filed a motion for re-argument in a matter involving breach of contract and breach of fiduciary duties. The plaintiff prevailed on its Motion for Summary Judgment. Defendant then filed this motion which the Court denied. The parties entered into a Consulting Agreement that prohibited the defendant from competing with the plaintiff's business. "Business" was defined in the parties Asset Purchase Agreement ("APA") to include "service, report, handle, and control the sale, destruction, or other disposition of damaged or unsaleable goods on behalf of manufacturers, vendors and other entities in the grocery and consumer packaged goods industry." The defendant denied breaching the covenant. The record indicated that the defendant was involved in seven corporations, including Sacks Processing, which did generate reports for its customers. The defendant also denied that the seven corporations were connected and refuted allegations that there was intercompany participation. The Court however held that the entities were connected and the work was performed in violation of the Consulting Agreement's prohibition in that "business." Accordingly, the Court denied defendant's Motion To Reargue on plaintiff's breach of contract claim. The second ground on which defendant was sued was aiding and abetting the breach of fiduciary duty by plaintiff's former officer. The Chief Financial Officer of plaintiff was Darryl Moll ("Moll"). That relationship, observed the Court, cast a fiduciary duty on Moll. Moll was designated as a director in Soost, the company alleged to have breached the contract with plaintiff. The breach occurred because defendant insisted, "as a condition of [its] loans to Soost, that Moll be named as officer and director of the Soost Entities." The Court held this relationship and the fact that Soost owed substantial money to plaintiff together caused Moll to breach his fiduciary duty to plaintiff. Further, because Moll did not inform the plaintiff on the extent of debts owed by Soost to it, Moll breached his fiduciary duty to plaintiff. The record also established that the defendant had aided and abetted Moll in his breach of fiduciary duty to plaintiff. Accordingly, the Court denied Defendant's Motion for Re-Argument on this ground too. Authored by: Raj Srivatsan 302.888.6831 rsrivatsan@morrisjames.com Share