Kids International Corp. produced children\'s wear for Wal-Mart and other retail
ID: 2774121 • Letter: K
Question
Kids International Corp. produced children's wear for Wal-Mart and other retailers. Gila Dweck was a Kids director and its chief executive officer. Because she felt that she was not paid enough for the company's success, she started another firm, Success Apparel, to compete with Kids. Success operated out of Kid's premises, used its employees, burrowed on its credit, took advantage of its business opportunities, and capitalized on its customer relationships. As an "administrative fee," Dweck paid Kids 1 percent of Success's total sales.
Question
Did Dweck breach any fiduciary duties? Explain.
Explanation / Answer
Answer)
Fiduciary Duty:
Definition: According to Cornell University's Legal Information Institute, a fiduciary duty is a legal duty to act solely in another party’s interests. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. Fiduciaries may not profit from their relationship with their principals unless they have the principals’ express informed consent. They also have a duty to avoid any conflicts of interest between themselves and their principals or between their principals and fiduciaries’ and other clients.
Fiduciary Duty:
Directors and officers are deemed fiduciaries of the corporation because their relationship with the corporation and its shareholders is one of trust and confidence. As fiduciaries, directors and officers owe ethical and legal duties to the corporation and to the shareholders as a whole. These duties are:
Duty of Loyalty:
Loyalty can be defined as faithfulness to one’s obligations and duties. In the corporate context, the duty of loyalty requires directors and officers to subordinate their personal interests to the welfare of the corporation. For instance, a director should not oppose a transaction that is in the corporation‘s best interest simply because pursuing it may cost the director his or her position.
Directors cannot use corporate funds or confidential corporate information for personal advantage and must refrain from self-dealing. Cases dealing with the duty of loyalty typically involve one or more of the following:
Sometimes, a corporation enters into a contract or engages in a transaction in which an officer or director has a personal interest. The director or officer must make a full disclosure of that interest and must abstain from voting on the proposed transaction.
Liability of Directors and Officers:
Directors and officers are exposed to liability on many fronts. They may be held liable for the crimes and torts committed by themselves or by corporate employees under their supervision. Additionally, if shareholders perceive that the corporate directors are not acting in the best interests of the corporation, they may sue the directors in what is called a shareholder’s derivative suit. Directors and officers can also be held personally liable under a number of statutes , such as those enacted to protect consumers or the environment.
Researched Decision:
In Dweck v. Nasser, C.A. No. 1353-VCL (Del. Ch. Jan. 18, 2012) (Laster, V.C.), the Delaware Court of Chancery, in a post-trial opinion, found that various former officers of Kids International Corp. (“Kids” or the “Company”) breached their fiduciary duties by
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