In Ginn v. NCI Building Systems, an officer of a company negotiated a separation contract with the company regarding his forced resignation. No. 01-12-00502-CV, 2015 Tex. App. LEXIS 8531 (Tex. App.—Houston [1st Dist.] August 13, 2005, no pet.). The company later sued the officer for breach of fiduciary duty and constructive fraud for failing to disclose to the company while he was negotiating the separation agreement that he was retaining confidential information and intended to compete with the company in the future. The jury returned a liability verdict for the company, and the officer appealed. The officer argued that he did not owe a duty of full disclosure to the company because he was “negotiating on his own personal behalf” and was not in a fiduciary relationship with company regarding the separation agreement.
The court of appeals disagreed and affirmed the jury’s verdict, holding that the officer had a duty of full disclosure. The court stated: “It is well established that corporate officers owe fiduciary duties to the companies they serve. And, as a fiduciary, a corporate officer owes a duty ‘to deal openly’ with and ‘make full disclosure[s]’ to his company.” The court concluded: “As a corporate officer of NCI, Ginn stood in a fiduciary relationship with NCI, and he, therefore, as a matter of law, had a duty to disclose material facts to NCI during the negotiations of the Separation Agreement.”
Interesting Note: This case is interesting because it places a duty of full disclosure on an officer of a company to disclose his true intentions while negotiating a separation agreement even though: 1) the officer is going to leave, 2) the company knows that the officer is going to leave, 3) the officer is negotiating for his own personal behalf adverse to the company, 4) the company is similarly negotiating in a position adverse to the officer, and 5) the company cannot realistically believe that the officer is placing the interests of the company above his or her own. There is precedent that takes a contrary position from the court in this case. See Pride Int’l, Inc. v. Bragg, 259 S.W.3d 839 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (“[Company’s CEO] had no duty to disclose his private views as to the interpretation of the agreement in the context of negotiating and renewing his own employment. In such a context, a corporate officer acts in his individual capacity, as it is evident that the company and the employee are adverse to each other in the context of negotiating that employee’s compensation.”); In re Walt Disney Co. Derivative Litig., 906 A.2d 27, 49-51 (Del. 2006) (holding president did not breach his fiduciary duty when he negotiated and accepted severance provisions of employment agreement or when he accepted a full payout upon termination).