Can You Take Your Employer’s Business for Yourself Without Havin
Can You Take Your Employer’s Business for Yourself Without Having to Pay Back What You Earned?
J.A. Morrissey Inc. (JAM,) a construction firm, hired Peter Smejkal (Peter) as an estimator. Peter eventually became a vice president and a director of JAM. While working for JAM, Peter formed his own construction company, Merkur, and a company to own land, IS Enterprises, LLC. While working at JAM, Peter did a number of things that benefited him, and not JAM: (1) He bought a commercial building and persuaded JAM to move its offices there. He used JAM personnel to renovate the entire building including installing heat and air conditioning. He then billed the entire cost to JAM instead of the portion relating to the office. (2) Peter obtained a contract for JAM to perform work for Paluska and then used his own company to do much of the work, after telling the client that JAM did substandard work. (3) He took a job involving Johnson for himself without telling JAM. (4) He steered other business to himself, and with his wife, (5) transferred money to several bank accounts to hide it so JAM could not collect any money if it won the lawsuit. A jury found he had breached his fiduciary duty to JAM, and interfered with JAM’s business relationships. The Jury awarded JAM $268,043 in actual damages and $25,000 in punitive damages. Peter appealed.
An officer and director of a corporation must act with the utmost good faith and loyalty towards the corporation, and cannot allow personal interests to supersede the interests of the corporation. Peter argued that the clients became dissatisfied with JAM, through no fault of his own, and the overbilling for the office project was merely a clerical error. But the Supreme Court concluded that Peter had a calculated plan to use the trust that JAM placed in him to sabotage JAM, and take its business for himself. Although Peter testified to a “patina of seemingly aboveboard conduct, underneath it all (he) was scheming to, and did” steal JAM’s clients for himself. Further the transfer of money to and between at least 10 different bank accounts was a fraudulent attempt to deprive JAM of money. Finally, these actions showed Peter harbored ill will and actual malice towards JAM which justified a punitive damage award, which was modest in view of the actual damages. The court affirmed the damage award.
In this decision the Supreme Court emphatically decided that business partners must be honest with each other, and cannot use fraud and self dealing to benefit themselves over the interests of the business. While not a crime, breach of a fiduciary duty can have severe financial repercussions. J.A. Morrissey Inc. v. Peter Smejkal. 2010 VT 66
