Aero Drapery of Kentucky, Inc. v. Engdahl

• Court: Supreme Court of Kentucky
• Writing for the Court: OSBORNE
• Citation: Aero Drapery of Kentucky, Inc. v. Engdahl, 507 S.W.2d 166 (Ky. 1974)
• Decision Date: 01 February 1974
• Parties: AERO DRAPERY OF KENTUCKY, INC., et al., Appellants, v. Reynold H. ENGDAHL et al., Appellees.

Page 166

507 S.W.2d 166

AERO DRAPERY OF KENTUCKY, INC., et al., Appellants, v. Reynold H. ENGDAHL et al., Appellees.

Court of Appeals of Kentucky.

Feb. 1, 1974.

As Modified April 12, 1974.

Joseph Davis, Louisville, for appellants.

Adrian F. O'Bryan, I. G. Spencer, Jr., Louisville, for appellees.

CATINNA, Commissioner.

J. H. Cox Manufacturing Company and Aero Drapery of Kentucky, Inc., appeal from an adverse judgment of the Jefferson Circuit Court, Chancery Branch, Fourth Division, in their action against Reynold Engdahl, Marvin Underwood, Allen Brown, Kenneth Bland, and Allen Brown Industries, Inc., d/b/a Starr Interiors.

We affirm the judgment of the trial court as to Underwood, Brown, Bland, and Allen Brown Industries, as there was no fiducial relationship between any of these parties, nor were they bound by any contract of employment. As we have concluded that a fiducial relationship existed between Engdahl and Aero, we reverse as to these two parties.

J. H. Cox Manufacturing Company is a wholesale supplier of drapery material located in Indianapolis, Indiana. Aero Drapery of Kentucky, Inc., is a retailer of custom-made draperies, employing approximately thirty-six people. J. H. Cox was the founder and controlling stockholder of both corporations.

Engdahl was a stockholder in and employed by Cox Manufacturing Company as an administrative assistant to J. H. Cox. He was also a ten-percent stockholder, a director, and the treasurer of Aero. Although Engdahl worked in Indianapolis, two days a month he would go to Louisville in his capacity as treasurer of Aero. He was in effect a liaison man and auditor for Cox. He reported to Cox on the status of accounts receivable, employee morale, and other Aero business information. Engdahl had access to all levels of Aero's corporate organization.

Kenneth Bland was the office manager; Allen Brown, the workroom manager; and Marvin Underwood, a top salesman for Aero. None of the individuals was under contract to either corporation.

In May of 1967 Bland expressed to Engdahl his dissatisfaction with his employment with Aero. Engdahl suggested that they meet after work to discuss forming a joint venture.

Engdahl, Bland, and Underwood, whom Bland suggested be included, met on May 21, 1967, and discussed a new enterprise and at that time decided to include Allen Brown.

On June 4 they decided to go into the custom-drapery business in direct competition with Aero. Engdahl, at that time, disclosed his participation in a confidential stock-bonus plan from which they had been excluded, exposed confidential profit and expense statistics of Aero, and tentatively offered to loan Bland, Brown, and Underwood $2,000 so that they could purchase stock in their new enterprise. On June 23, 1967, the four decided upon the location for the new business. Fabric suppliers were contacted and a listing was secured in the yellow pages. On July 10, 1967, Engdahl tendered resignations as director and treasurer of Aero Drapery and as an employee of Cox Manufacturing. The resignations were to be effective on August 10, 1967. In reality, the last day of his employment with either corporation was August 5, 1967, although he was on the payroll until August 10. He also tendered the stock he had acquired under the stock-bonus plan for repurchase by the corporation. On August 11, 1967, his other three associates terminated their employment with Aero without prior notice and on August 13, 1967, opened their new business in direct competition with Aero.

Prior to their resignations, they incorporated Allen Brown Industries, named its business enterprise Starr Interiors, opened a bank account, purchased goods and machines, and copied virtually every form and chart used in Aero's business. After the termination of his employ with Aero, Engdahl disclosed generally the stock-bonus plan in a 'Letter to Known Stockholders.'

It is contended that Engdahl occupied a fiduciary relationship as to Aero, that he breached that duty, and that damage resulted to Aero from the breach.

KRS 271.365 (repealed 1972) imposed a statutory fiduciary duty upon Reynold Engdahl: 'Officers and directors shall be deemed to stand in a fiduciary relation to the corporation, and shall discharge the duties of their respective positions in good faith, and with that diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in like positions.'

Even without this statute there existed a fiduciary relationship between Engdahl and Aero. The position of trust, the freedom of decision, and access to confidential corporate information evidence this fact. By accepting the offices of treasurer and director of Aero, Engdahl elected to manage the affairs and property of Aero for its benefit. The duties and liabilities of any agent to his principal are parallel to the nature of the particular office which the agent agrees to perform. Fletcher Cyclopedia of Corporations, Vol. 3, Chapter 11, Section 847, page 194. In this action Engdahl voluntarily undertook the responsibility of reporting the status of Aero's financial and internal organization to J. H. Cox. He is liable for damages attributable to a breach of that responsibility.

The conduct of Engdahl as an officer and director of Aero falls below the standard required of corporate fiduciaries. In Reinhardt v. Owensboro Planing Mill Company, 185 Ky. 600, 215 S.W. 523 (1919), we said:

'The relations of officers and directors in this...