Perry v. Frigi-Temp Frigeration: Breach of Fiduciary Duty

Saturday, September 12, 2020

Whereas one social gathering might owe a fiduciary obligation to a different outdoors of their contract, the Enterprise Courtroom will nonetheless look at the damages the plaintiff seeks from every declare. Perry v. Frigi-Temp Frigeration, Inc., 2020 NCBC 62 (J. Bledsoe). The place the damages a plaintiff seeks for his breach of fiduciary obligation declare are indistinguishable from the damages he seeks for his breach of contract declare, the financial loss rule bars the fiduciary obligation declare.

Plaintiff Monte L. Perry (“Perry”) and Defendant John Grey (“Grey”) have been long-time mates. In 2018, Grey requested Perry change into CEO of an organization Grey owned, Defendant Frigi-Temp Frigeration, Inc. (“Frigi-Temp”). Grey supplied Perry a written settlement which supplied that a part of Perry’s annual compensation can be paid in Frigi-Temp inventory. (“Settlement”). The Settlement additionally supplied Perry a considerable bonus if Frigi-Temp have been bought for greater than $1 million (“Bonus”). In November 2019, Grey terminated Perry, who by that point had change into a minority shareholder. In January 2020, Grey then bought Frigi-Temp for greater than $1 million. Following the sale, Perry demanded Frigi-Temp pay him the Bonus. Grey refused, contending the Settlement required Perry to be employed on the time of the sale to be eligible for the Bonus. Perry filed go well with, claiming Frigi-Temp breached the Settlement by failing to pay him the Bonus. Perry additionally asserted claims for breach of fiduciary obligation and constructive fraud towards Grey for failing to make sure the Bonus was paid. Grey sought dismissal of Perry’s tort claims (i.e., the declare for breach of fiduciary obligation and the declare for constructive fraud), contending each claims have been barred by the financial loss rule.

The Enterprise Courtroom agreed. Explaining that the financial loss rule bars restoration in tort for damages that come up out of a breach of contract, the Enterprise Courtroom decided that Perry’s damages arising from the tortious acts have been the identical damages that he sought from his breach of contract declare towards Frigi-Temp; particularly, the quantity of the Bonus. Though the obligation Grey owed Perry was from a supply aside from the Settlement (i.e., as a majority shareholder to a minority shareholder), the Enterprise Courtroom decided that the financial loss rule barred the tort claims as a result of the damages from all of the claims have been primarily based solely on the Settlement.

On account of this choice, a enterprise or shareholder going through a tort declare (with accompanying claims for attorneys’ charges or trebling of damages) ought to carefully look at whether or not the plaintiff’s claimed damages come up from a contract, in an effort to winnow down the potential legal responsibility publicity.