Looney v. M-Squared, Inc.

• Decision Date: 09 July 2003
• Docket Number: No. A03A0614, No. A03A0615.
• Citation: 586 S.E.2d 44,262 Ga. App. 499
• Parties: LOONEY v. M-SQUARED, INC. M-Squared, Inc. v. Looney et al.
• Court: Georgia Court of Appeals

586 S.E.2d 44

262 Ga. App. 499

LOONEY v. M-SQUARED, INC.

M-Squared, Inc. v. Looney et al.

Nos. A03A0614, A03A0615.

Court of Appeals of Georgia.

July 9, 2003.

Reconsideration Denied July 25, 2003.

Certiorari Denied November 17, 2003.

Richardson & Chenggis, George G. Chenggis, Kilpatrick Stockton, Craig E. Bertschi, Atlanta, for Looney et al.

Kenison & Dudley, Keven K. Kenison, Joel F. Geer, Atlanta, for M-Squared, Inc. RUFFIN, Presiding Judge.

M-Squared, Inc. ("M-Squared") sued Craig Looney, Robert Bandemir, and Thomas Schening, all former M-Squared employees, as well as Comrep, Inc., Looney's corporation, for fraud, tortious interference with prospective contractual relations, breach of fiduciary duty, misappropriation of corporate opportunity, and unfair trade practices.¹ At the close of evidence at trial, all parties moved for a directed verdict. The trial court denied M-Squared's motion, but directed a verdict for the defendants on various claims, including all allegations relating to Schening. The trial court ultimately submitted the following claims to the jury: (1) tortious interference with prospective contractual relations (as to Looney, Bandemir, and Comrep); (2) breach of fiduciary duty (as to Looney); and (3) misappropriation of corporate opportunity (as to Looney).

The jury found for Bandemir on M-Squared's tortious interference with prospective contractual relations claim. With respect to the other claims, however, it found in favor of M-Squared. Looney and Comrep subsequently moved for a judgment notwithstanding the verdict ("j.n.o.v."). M-Squared also sought a j.n.o.v. as to the jury's verdict for Bandemir. Although the trial court denied M-Squared's motion, it granted Looney and Comrep's motion regarding tortious interference with prospective contractual relations. As a result, only the jury's verdict against Looney for misappropriation of corporate opportunity and breach of fiduciary duty remained.

In Case No. A03A0614, Looney appeals the trial court's failure to enter judgment for him on these two claims. In Case No. A03A0615, M-Squared appeals the trial court's rulings granting the various defendants' motions for directed verdict and j.n.o.v.² For reasons that follow, we reverse the judgment in Case No. A03A0614, but affirm the judgment in Case No. A03A0615.

When reviewing a trial court's rulings on motions for directed verdict and j.n.o.v., we resolve the evidence and any doubts or ambiguities in favor of the verdict; directed verdicts and judgments n.o.v. are not proper unless there is no conflict in the evidence as to any material issue and the evidence introduced, with all reasonable deductions therefrom, demands a certain verdict.³

So viewed, the evidence shows that M-Squared, a corporation organized under the laws of North Carolina, distributes electronic components for manufacturers. At the beginning of 1994, Looney was an M-Squared officer, director, and shareholder, as well as territorial manager of the company's Atlanta office. As territorial manager, Looney was responsible for soliciting manufacturers—referred to as "lines"—to obtain the right to distribute their components.

In early 1994, M-Squared's president, Cecil Martin, learned that Fujitsu, a manufacturer, needed a new company to distribute its products. Fujitsu's area distribution manager, Jim Planche, was in the process of collecting profiles of interested companies. The decision as to which company would receive the Fujitsu line ultimately rested with Tom Sullivan, Fujitsu's vice president. But, since Looney knew Planche, Martin asked Looney to pursue the Fujitsu line on behalf of M-Squared. Martin testified that Looney was responsible for recruiting the Fujitsu business, which was worth approximately $20 million in sales.

According to Looney, he solicited the Fujitsu line, as well as the Vitramon line, on behalf of M-Squared between January and May 1994. On March 7, 1994, Looney submitted M-Squared's company profile to Planche. In a memo dated that same day, Looney informed Martin that M-Squared was officially "in the hunt" for an interview with Fujitsu. Although numerous firms were competing for the line, Fujitsu only planned to interview six or seven companies before making a final decision. Looney made several follow-up calls to Planche's office between March 7, 1994, and the end of April 1994 on M-Squared's behalf. Planche testified that he considered M-Squared to be a viable candidate and was willing to give the company an interview based on his relationship with Looney.

At the beginning of May, however, Planche learned that Looney had formed his own company and wanted to pursue the Fujitsu line on its behalf. The evidence shows that, in March or April 1994, Looney and Bandemir, an M-Squared salesman, decided to leave M-Squared and start a new venture. On May 3, 1994, Martin became aware of their plans. The next day, Martin met with Looney and Bandemir, who submitted letters of resignation. After Looney's departure, Martin appointed Schening territorial manager of the Atlanta office. Following these departures, M-Squared did not pursue the Fujitsu or Vitramon business.

Looney's new venture, Comrep, was incorporated in June 1994, with Looney as president and Bandemir as secretary and treasurer. The evidence further shows that Looney met with several manufacturers on behalf of Comrep, including Fujitsu and Vitramon. Although not yet incorporated, Comrep interviewed with Fujitsu and Vitramon in the middle of May 1994. The first week of June 1994, Vitramon announced that Comrep would be its new representative. At the beginning of August 1994, Comrep also secured the Fujitsu line. Later that month, Schening resigned from M-Squared and joined Comrep.

Case No. A03A0614

1. Looney argues that the trial court should have granted his motions for directed verdict and j.n.o.v. on M-Squared's claim for misappropriation of corporate opportunities. He asserts that M-Squared failed to prove that it had any interest or expectancy in these opportunities, precluding recovery.

Both parties agree that the law of North Carolina, where M-Squared was incorporated, applies to its claim for misappropriation of corporate opportunity.⁴ In North Carolina, a corporate officer may not act "`in any ... double capacity to appropriate business for himself belonging legitimately to his corporation and to reap the profits of it.'"<sup>5</sup> This "corporate opportunity doctrine" is "`a species of the duty of a fiduciary to act with undivided loyalty.... [I]n general, a corporate officer or director is under a fiduciary obligation not to divert a corporate business opportunity for his own personal gain.'"⁶ When presented with such a claim, the factfinder must determine whether the allegedly usurped opportunity was functionally related to the corporation's business, as well as whether the corporation had an interest or expectancy in the opportunity.⁷ The following factors may be considered:

1) the ability, financial or otherwise, of the corporation to take advantage of the opportunity; 2) whether the corporation engaged in prior negotiations for the opportunity; 3) whether the corporate director or officer was made aware of the opportunity by virtue of his or her fiduciary position; 4) whether the existence of the opportunity was disclosed to the corporation; 5) whether the corporation rejected the opportunity; and 6) whether the corporate facilities were used to acquire the opportunity.⁸

In this case, two business opportunities are at issue—representing the Fujitsu line and representing the Vitramon line. Looney testified that he actively recruited both lines for M-Squared between January and May 1994. And, according to Martin, M-Squared was capable of servicing those lines at that time. Martin also admitted, however, that after Looney and Bandemir left the company, M-Squared stopped pursuing the business, electing instead to focus on existing lines. As described by M-Squared, once Looney and Bandemir departed, the company "was left in the unfortunate position of making the choice whether to engage in damage control and focus on existing lines or risk being spread too thin and continuing the pursuit of the Fujitsu and Vitramon lines."

The Vitramon line did not become available until after Looney and Bandemir left M-Squared and was not awarded to Comrep until June. Comrep also did not secure the Fujitsu business until August 1994. And a Fujitsu representative told Martin shortly before or after May 4, 1994, that "he saw no reason why [M-Squared] would not get an interview." Planche similarly testified that he would have considered M-Squared for an interview at that time. Nevertheless, M-Squared did not pursue the opportunity.

The evidence thus shows that M-Squared could have pursued these business opportunities after Looney and Bandemir resigned but elected not to so that it could focus on existing business with its smaller staff. We recognize that Looney apparently solicited the Fujitsu and Vitramon lines on Comrep's behalf before his May 4, 1994 resignation. That conduct, however, cannot be tied to M-Squared's failure to obtain the business. Instead, M-Squared chose not to avail itself of the opportunities, about which it clearly was aware, because it did not want to "spread ... itself too thin" following Looney and Bandemir's departure. Accordingly, M-Squared had no interest or expectancy in the Fujitsu and Vitramon opportunities, entitling Looney to a directed verdict on this claim.⁹

2. The trial court also erred in refusing to direct a verdict on M-Squared's breach of fiduciary duty claim. Once again, the parties agree that North Carolina law applies to this claim. In North Carolina, corporate officers and directors owe a fiduciary duty to the corporation, requiring them to act in good faith and for the interest of the company.¹⁰

On appeal, Looney argues that M-Squared's breach of fiduciary duty and...