Last week, it was reported that a San Diego corporation, Trovagene, Inc., fired and initiated business litigation against two of its executives – CEO Antonius Schuh and CFO Stephen Zaniboni. In that lawsuit, the corporation alleges that the two executives breached their fiduciary duties by usurping a corporate opportunity that should have been presented to the corporation, but was instead taken for the personal gain of the executives. Schuh and Zaniboni deny the allegation and released a statement claiming that “there are no merits to the actions the company has taken against us.” Schuh has since stated that he plans to file a lawsuit against Trovagene for wrongful termination, which he expects Zaniboni to join. Unfortunately, this sequence of events is not uncommon when the relationship between a business and an executive sours.
To recover, Trovagene will need to prove: (1) the existence of a fiduciary duty, (2) a breach of that fiduciary duty, and (3) that the resulting damage to the corporation was proximately caused by the breach. Oasis West Realty, LLC v. Goldman (2011) 51 Cal. 4th 811, 820. In general, a fiduciary relationship exists “[w]here a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter’s knowledge or consent.” Wolf v. Superior Court (2003) 107 Cal. App. 4th 25, 29. A few classic examples of fiduciary relationships include: trustee/beneficiary, directors, officers, and majority shareholders of a corporation, and real estate agent/client.
If such a relationship exists, the corporation will need to prove that Schuh and Zaniboni violated the duty (e.g., duty of loyalty, duty of care, etc.), the corporation was harmed by the breach, and the breach was the proximate cause of the corporation’s damages. Slovensky v. Friedman (2006) 142 Cal. 4th 1518, 1534. These inquiries will be highly fact-specific and will be thoroughly vetted by each party’s counsel. In addition, Trovagene will need to prove these elements subject to the defendant’s defenses and, concurrently, defend against the likely wrongful termination lawsuit.
Although we encourage parties to consider alternative dispute resolution, sometimes litigation is necessary to protect your interests. Whether you’re involved in an alleged breach of fiduciary duty lawsuit or some other kind of business litigation, we recommend that you promptly consult a business litigator to discuss your case.
Liam Perry is an Associate Attorney at The Loftin Firm. For questions relating to this blog post or any other California real estate, land use, corporate, or estate planning matter, contact The Loftin Firm at 760-814-9649.