Ohio Appellate Court: It Takes More Than Sour Grapes To Prove Tortious Interference and Fiduciary Breach

Late last month, the Cuyahoga County Court of Appeals rejected the claims of a disappointed parts distributor against a former executive and his new employer (a used parts distributor). N. Coast Engines, Inc. v. Hercules Engine Co., 2008-Ohio-793 (2/28/08). In that case, the plaintiff company (the parts distributor) had an exclusive distribution agreement with a manufacturer. The plaintiff-company had promoted the defendant executive to president of the company because of his years of experience selling that manufacturer’s parts and because he had been an excellent employee for five years. The executive was employed at will for $50,000/year and, importantly, did not have any non-competition, confidentiality or non-solicitation agreements with the plaintiff company. The defendant-company was a used parts distributor, who hired the defendant executive (at the same salary, but subject to a non-compete agreement, and a three- year employment agreement with health insurance benefits) on January 10, 2005 and then shortly thereafter – on January 25, 2005 -- won the exclusive right to resell the manufacturer’s new parts. The plaintiff company ended up without a talented president and without its exclusive deal with the manufacturer.

The plaintiff company had considered selling itself to its former president during the prior year. However, when the defendant company learned of that possibility, it expressed its interest in buying the plaintiff instead. When the plaintiff presented the defendant with a confidentiality agreement before permitting due diligence, the defendant company realized that it did not want the business that much and withdrew its interest. Learning that the plaintiff company was for sale, the defendant executive then began exploring other employment opportunities, including going to work for defendant-company. He gave his notice of resignation to the plaintiff-company on January 17 and continued working for the plaintiff through January 28. The last few days were spent helping transfer its inventory to his new employer, which had won the exclusive distribution agreement from the manufacturer on January 25 when the manufacturer learned that it had hired defendant executive.

The Court rejected the breach of fiduciary duty claim against the executive because there was no evidence that the executive “sustained any financial gain, any kickback, or any promotion for joining: the defendant-company or showing that he “intentionally changed employment in order to divest the” plaintiff employer of its exclusive agreement with the manufacturer. As an at-will employee, he was free to resign at any time. In the absence of a restrictive covenant, he was also free to begin working for a competitor following his employment and to continue serving former business contacts also served by his new employer. There was no evidence of any secret dealing or conflict of interest.

The Court rejected the claim that the defendant-employer tortiously interfered with the executive’s fiduciary duty because there was no breach of fiduciary duty. Moreover, there was no tortuous interference with the plaintiff’s exclusive distributorship arrangement with the manufacturer because there was no evidence that the executive had been hired with the intent of inducing the manufacturer to terminate its relationship with the plaintiff company. Rather, the defendant company hired the executive because of his extensive knowledge of the manufacturer’s parts (which the defendant company sold used).

Insomniacs may read the full decision at http://www.sconet.state.oh.us/rod/docs/pdf/8/2008/2008-ohio-793.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.