Graphic Directions, Inc. v. Bush, 91CA0238

• Decision Date: 10 June 1993
• Docket Number: No. 91CA0238,91CA0238
• Citation: 862 P.2d 1020
• Parties: GRAPHIC DIRECTIONS, INC., a Colorado corporation, Plaintiff-Appellee, v. Robert L. BUSH and F. Dennis Dickerson, Defendants-Appellants. . V
• Court: Colorado Court of Appeals

Page 1020

862 P.2d 1020

GRAPHIC DIRECTIONS, INC., a Colorado corporation, Plaintiff-Appellee, v. Robert L. BUSH and F. Dennis Dickerson, Defendants-Appellants.

No. 91CA0238.

Colorado Court of Appeals,

Div. V.

June 10, 1993.

Rehearing Denied July 15, 1993.

Certiorari Denied Dec. 13, 1993.

Peggy E. Stevens, Denver, for plaintiff-appellee.

Hutchinson, Black & Cook, William D. Meyer, Heather Ryan, Boulder, for defendants-appellants.

Opinion by Chief Judge STERNBERG.

Defendants, Robert L. Bush and F. Dennis Dickerson, appeal a judgment entered on a jury verdict in favor of Graphic Directions, Inc. (GDI), awarding compensatory and exemplary damages for breach of fiduciary duty. This court reversed the judgment, Graphic Directions, Inc. v. Bush, 844 P.2d 1190 (Colo.App.1992), but, on certiorari review, the Supreme Court vacated the judgment of this court and remanded with directions that we reconsider in light of Pomeranz v. McDonald's Corp., 843 P.2d 1378 (Colo.1993). Pursuant to the order of this court the parties submitted supplemental briefs addressing this issue. We have reconsidered the case and again reverse the judgment, vacate the award of actual damages for breach of fiduciary duty, and remand with instructions concerning the award of exemplary damages.

GDI, a small graphics business, was started in 1975 by Grant and Oli Duncan, a husband and wife team. Bush became a shareholder, vice-president, and marketing director in 1983. Dickerson was hired as a free lance artist in 1985. Upon the death of Grant Duncan in 1988, Oli Duncan continued operating the business, Bush retained his position, and Dickerson was appointed to the position of art director.

Dissatisfied with management decisions made by Oli Duncan after her husband's death, Bush, in early 1989, made preparations to start his own business. He discussed his plans with Dickerson and another GDI employee, George L. Roche, Jr., but not with Oli Duncan. On April 17, 1989, the three employees resigned from GDI and immediately began operation of Concepts 3, a competing graphics business.

GDI then filed a complaint asserting numerous causes of action (of which only three were actually tried), and the three employees counterclaimed alleging defamation. The court denied the defendants' motions for a directed verdict at the close of the plaintiff's case and again at the conclusion of the case.

The jury returned a verdict in favor of GDI against Bush in the amount of $91,400 for breach of fiduciary duty, $2.50 for conversion, and $1,056.30 on the diversion of corporate opportunity claim, and assessed exemplary damages in the amount of $30,000. It found in favor of GDI on Bush's counterclaim for defamation.

The jury awarded GDI $26,733 on the breach of fiduciary duty claim against Dickerson and assessed exemplary damages in the amount of $5,000. The verdict was in favor of Dickerson on the conversion claim and in favor of GDI on his defamation counterclaim.

The jury found in favor of the third employee, Roche, on GDI's claims and on his counterclaim for defamation, but awarded nominal damages of $1.

The court entered judgment on these verdicts and denied post-trial motions for judgment notwithstanding the verdict or new trial. Bush satisfied the judgment on the conversion and diversion of corporate opportunity claims.

Bush and Dickerson now appeal the judgment on the claim for breach of fiduciary duty, contending that the court erred in submitting it to the jury. The issues before us are whether, as a matter of law, GDI established the elements of this claim and, if not, to what extent the award of exemplary damages may stand.

I.

In order to recover on a claim for breach of fiduciary duty, a plaintiff must prove: 1) that the defendant was acting as a fiduciary of the plaintiff; 2) that he breached a fiduciary duty to the plaintiff; 3) that the plaintiff incurred damages; and 4) that the defendant's breach of fiduciary duty was a cause of the plaintiff's damages. CJI-Civ.2d 26:1 (1989).

A.

Dickerson argues that the trial court erred in not submitting to the jury the question of whether a fiduciary relationship existed between himself and GDI. We perceive no error in this regard.

Dickerson recognizes that, under Jet Courier Service, Inc. v. Mulei, 771 P.2d 486 (Colo.1989), a duty of loyalty exists between an employer and its employees. However, he contends that because he was an hourly employee with no management or administrative authority, he was not subject to the fiduciary duties outlined in Mulei. In his view, the thrust of Mulei was to extend a fiduciary duty only to corporate officers and other high-echelon employees. He argues that it would be unjust to impose a duty of loyalty upon an employee who has no authority to act for the corporation and whom the employer may terminate without cause.

The supreme court has recognized that, although the existence of fiduciary relationship is a question of fact, a trial court may resolve the question as a matter of law under certain conditions. Paine, Webber, Jackson & Curtis v. Adams, 718 P.2d 508 (Colo.1986). In Paine, Webber, after determining that a stock-broker/customer relationship was not per se fiduciary in nature, the court held that proof of practical control of a customer's account by a broker would establish the existence of a fiduciary duty. It then concluded that, because the evidence when viewed most favorably to the defendants conclusively demonstrated that the brokers controlled the plaintiff's accounts, the trial court acted properly when it instructed the jury that, as a matter of law, the defendants owed the plaintiff a fiduciary duty.

Here, the effect of the trial court's instructions was to take the question of the existence of a fiduciary duty from the jury. The trial court instructed the jury that, in order for GDI to recover on its claim for breach of fiduciary duty, it must prove that Bush and Dickerson were employees. In reliance on Mulei, supra, the court also instructed the jury that: "At all times during his employment, an employee is subject to a duty of loyalty to his employer in all matters connected with his employment."

The Mulei court based its determination that an employee owes a fiduciary duty to his employer upon Restatement (Second) of Agency § 387 (1958), which provides that an agent is subject to a duty "to act solely for the benefit of the principal in all matters connected with his agency."

However, in Mulei, supra, at 492 (fn. 10), the court pointed out that:

Because an employee's duty of loyalty is based in part on agency law, some cases suggest that the higher standard of the duty of loyalty may only be appropriate where an employee has sufficient authority to act for the employer or access to confidential information to make apt the principal/agent analogy.

Additionally, writing in special concurrence, Justice Mullarkey emphasized that when an employee was not an agent of the employer, the duty of loyalty and the test for breach of that duty might be different from that defined by the majority.

The Mulei court was concerned with balancing society's interest in free and vigorous economic competition with the competing policy considerations of honesty and fair dealing by employees. The court noted that other jurisdictions have been influenced by similar considerations. See Chelsea Industries, Inc. v. Gaffney, 389 Mass. 1, 449 N.E.2d 320 (1983) (employee occupying a position of trust and confidence is bound to act for employer's benefit in all matters within scope of employment); Maryland Metals, Inc. v. Metzner, 282 Md. 31, 382 A.2d 564 (1978) (fairness dictates that employee not be permitted to exploit trust of employer to obtain unfair advantage in competing in matter concerning employer's business); Las Luminarias v. Isengard, 92 N.M. 297, 587 P.2d 444 (1978) (employment relationship is one of trust and confidence; employee has duty to use best efforts on behalf of employer).

Here, as art director, Dickerson handled the technical art aspects of GDI's accounts and supervised the work of other GDI artists. Furthermore, he had ongoing personal contact with many of GDI's most important clients and personally handled their needs.

Although, as the supreme court suggested in Mulei, there may be circumstances under which the duty of loyalty does not apply to an employee, under the facts before us, even when viewed in a light most favorable to the defendant, it is clear that Dickerson's position was one of sufficient authority that the principal/agent analogy is apt beyond question.

Accordingly, we conclude that the trial court did not err in instructing the jury that, if it found Dickerson was an employee, it must conclude that he owed a fiduciary duty to GDI.

B.

Although the evidence was not overwhelming, we conclude that it was sufficient to support the jury's conclusion that Bush and Dickerson breached their fiduciary duty to GDI.

While still employed, an employee may make preparations to compete after termination of his employment and may advise current customers that he will be leaving. However, pre-termination solicitation of customers for a new competing business violates the employee's duty of loyalty. Jet Courier Service, Inc. v. Mulei, supra.

Indeed the very heart of the Mulei decision is to give vitality to an employee's duty of loyalty to his employer. When Mulei v. Jet Courier Service, Inc., 739 P.2d 889 (Colo.App.1987) was decided by this court, we upheld the trial court's conclusion that an employee's pre-termination meetings with customers did not breach the employee's duty of loyalty. In reversing, the supreme court placed great reliance on the Restatement (Second) of Agency § 393 comment e (1958) and held that this court and the trial court had "applied an unduly narrow legal standard in holding [the employee's] duty of loyalty...." The supreme court ordered the case remanded to the trial court to determine whether the ...