Production Finishing Corp. v. Shields

• Decision Date: 14 May 1987
• Docket Number: Docket No. 80895
• Citation: 158 Mich.App. 479,405 N.W.2d 171
• Parties: PRODUCTION FINISHING CORPORATION, Plaintiff-Appellant Cross-Appellee, v. Peter F. SHIELDS and Flat Rock Metal, Inc., Defendants-Appellees Cross-Appellants. 158 Mich.App. 479, 405 N.W.2d 171
• Court: Court of Appeal of Michigan — District of US

Page 171

405 N.W.2d 171

PRODUCTION FINISHING CORPORATION, Plaintiff-Appellant Cross-Appellee, v. Peter F. SHIELDS and Flat Rock Metal, Inc. Defendants-Appellees Cross-Appellants.

Docket No. 80895.

158 Mich.App. 479, 405 N.W.2d 171

Court of Appeals of Michigan.

Submitted Nov. 7, 1986.

Decided March 16, 1987.

Released for Publication May 14, 1987.

[158 MICHAPP 481] Bushnell, Gage, Doctoroff & Reizen by John K. Parker, Southfield, and Arnstein, Gluck, Lehr, Barron & Milligan by Richard K. Wray and Michael J. Ranallo, Chicago, Ill., for plaintiff-appellant cross-appellee.

[158 MICHAPP 482] Plunkett, Cooney, Rutt, Watters, Stanczyk & Pedersen, P.C. by B.I. Stanczyk, John P. Jacobs, Ernest R. Bazzana and Anthony J. Rusciano, Detroit, for defendants-appellees cross-appellants.

Before: HOOD, P.J., and T.M. BURNS and THEILER, ^* JJ.

PER CURIAM.

On August 26, 1981, plaintiff Production Finishing Corporation filed suit against defendants Peter F. Shields and Flat Rock Metal, Inc. (Flat Rock) alleging that Shields had usurped a corporate opportunity of Production Finishing, breached his fiduciary duties as an officer and director of Production Finishing, and breached his employment contract with Production Finishing. The trial court granted summary judgment on April 26, 1984, in favor of plaintiff on the breach of employment contract count. Following a jury trial from April 30, 1984, through May 17, 1984, a verdict was entered in favor of defendants on the remaining counts. Plaintiff appeals as of right from the jury verdict. Defendants appeal as of right from the order of summary judgment in favor of plaintiff.

FACTS

Defendant Shields was president of Production Finishing from January, 1974, through August, 1981, and was also a member of its Board of Directors. Production Finishing provides goods and services to the automotive industry, which includes the service of steel polishing. In 1981, Production Finishing did most, if not all, of the polishing work in the Detroit area with the exception of the polishing work for Ford Motor Company (Ford), which had its own polishing plant in Monroe, [158 MICHAPP 483] Michigan. A longstanding objective of Production Finishing was to obtain the Ford business if Ford decided to cease its operations in that area. Shields as a representative of Production Finishing, approached Ford on a regular basis with proposals to let Production Finishing do their polishing work.

Shields learned that Ford was considering ceasing its polishing operations and Shields brought this information to the attention of Production Finishing's Board of Directors at a meeting on April 29, 1981. Shields suggested to the board that Ford's business might be available and that Production Finishing should pursue the obtaining of Ford's polishing work and consider Pursuant to the board's request, Shields contacted Stan Cronenwett, the manager of the Ford Motor Monroe Plant, and arranged a meeting at which Production Finishing's proposal was discussed. Cronenwett was against the proposal because, with the Ford business, Production Finishing would have a monopoly in the area. At some point in the discussion, Shields asked Cronenwett if Ford would let him do the work in his individual capacity. In pursuit of this goal, Shields met with another Ford representative, Bill Graning, on May 28, 1981, to discuss the proposal in greater detail. Shields told Graning that if the opportunity did not exist for Production Finishing, he would like to provide the services himself. Subsequently Shields submitted a confidential proposal through his attorney to Ford which provided that he would buy Ford's equipment and provide polishing services to Ford. In the following months, Shields met with Ford representatives on several occasions to finalize these plans.

buying Ford's equipment to set up an additional plant to handle the work. The board requested that Shields continue to investigate the matter.

[158 MICHAPP 484] In further pursuit of this endeavor, Shields had the Ford equipment appraised and sought a loan from Manufacturer's Bank. Flat Rock Metal was incorporated on July 8, 1981, by Shields, with the intent that Flat Rock would perform the polishing services for Ford. Shields is the president and controlling stockholder of Flat Rock.

Throughout these dealings, Shields did not inform the Production Finishing Board of Directors that Ford refused to give its business to Production Finishing or that Shields was pursuing the opportunities on his own account. Shields did disclose his intentions to Omer O'Neil when he asked O'Neil to leave Production Finishing and go with him to his new company. However, O'Neil was not a member of the Board of Directors and, in fact, reported to Shields at Production Finishing. At one point during trial Shields testified that he did not want Dean Rhoads, Production Finishing's sole stockholder, to know about the Ford endeavor. It was not until after he resigned in August, 1981, that Shields informed the board that he was pursuing the Ford business himself.

ANALYSIS

A

Plaintiff first argues that the trial court erred by failing to grant plaintiff's motion for judgment notwithstanding the verdict on plaintiff's claim that Shields breached his fiduciary duties and diverted a corporate opportunity of plaintiff. We agree.

The jury returned a verdict in favor of defendants, finding that the Ford business and equipment was not a corporate opportunity in which production Finishing had a reasonable expectancy [158 MICHAPP 485] and further finding that Shields did not breach his fiduciary duties to Production Finishing.

In reviewing the denial of a motion for a judgment notwithstanding the verdict, this Court must give the nonmoving party the benefit of every reasonable inference that could be drawn from the evidence. If reasonable minds could honestly disagree as to whether plaintiffs have satisfied their burden of proof, judgment is improper and the question is to be resolved by the trier of fact. In re Brack Estate, 121 Mich.App. 585, 588, 329 N.W.2d 432 (1982); Wilson v. Chesapeake & Ohio R. Co., 118 Mich.App. 123, 133, 324 N.W.2d 552 (1982), lv. den. 417 Mich. 1044 (1983). A judgment notwithstanding the verdict is appropriate only if the evidence is insufficient as a matter of law to support a judgment for the nonmoving party. Slanga v. Detroit, 152 Mich.App. 220, 224, 393 N.W.2d 487 (1986); Willoughby v. Lehrbass, 150 Mich.App. 319, 344, 388 N.W.2d 688 (1986).

Reasonable minds could not honestly disagree in this case. The facts indicate that plaintiff is entitled to a judgment as a matter of law. Shields breached his fiduciary duties to the corporation by diverting a corporate business opportunity for his own personal gain. Shields did so when he pursued the Ford polishing business and purchased the Ford equipment while president It is widely recognized that the appropriation of a corporate opportunity by an officer or director will constitute an actionable breach of fiduciary duties:

of Production Finishing without full disclosure to the corporation.

"A corporate officer or director is under a fiduciary obligation not to divert a corporate business opportunity for his own personal gain. The rule is that if there is presented to a corporate officer or [158 MICHAPP 486] director a business opportunity which the corporation is financially able to undertake which is, from its nature, in the line of the corporation's business and is of practical advantage to it, and which is one in which the corporation has an interest or a reasonable expectancy, and if, by embracing the opportunity, the self interest of the officer or director will be brought into conflict with that of this corporation, the law will not permit him to seize the opportunity for himself. If he does, the corporation may claim the benefit of the transaction." 18B Am Jur 2d, Corporations, Sec. 1770, pp 623-624; see also 19 CJS Sec. 785, p 161; Anno: Fairness to corporation where "corporate opportunity" is allegedly usurped by officer or director 17 ALR4th 479.

It is beyond dispute that in Michigan, directors and officers of corporations are fiduciaries who owe a strict duty of good faith to the corporation which they serve. Salvador v. Connor, 87 Mich.App. 664, 675, 276 N.W.2d 458 (1978), lv. den. 406 Mich. 966 (1979). In regard to a corporate officer who acts as an agent of the corporation, the Supreme Court has stated:

"[A]s to engaging in other business, it is an elemental rule of agency that his duties required his efforts and activities in the line of his employment should be for the benefit of his principal, and he was not at liberty to deal in the business of his agency for his own benefit. It was his duty to communicate to his principal facts relating to the business which ought in good faith be made known to the latter.... The corollary to that fundamental rule is thus concisely stated in 1 Mechem on Agency (2d Ed.), Sec. 1224:

" 'The well settled and salutary principle that a person who undertakes to act for another shall not, in the same matter, act for himself, results also in the other rule, that all profits made and advantage gained by the agent in the execution of [158 MICHAPP 487] the agency belong to the principal. And it matters not whether such profit or advantage be the result of the performance or of the violation of the duty of the agent if it be the fruit of the agency.'

"Where the agent is also an officer of a corporation for which he is acting there is added reason for rigidly adhering to the rule." Michigan Crown Fender Co. v. Welch, 211 Mich. 148, 159, 160, 178 N.W. 684 (1920).

The Supreme Court has also quoted from Mechem's Outlines of Agency (1901 ed), Sec. 148, stating:

" 'Except with the full knowledge and consent of his principal, an agent authorized to buy for his principal cannot buy of himself; an agent authorized to sell cannot sell to himself; an agent authorized to buy or sell...