Community Counselling Service, Incorporated v. Robert Benedict Reilly
317 F.2d 239, 7 Fed. R. Serv. 2d 590, 1963 U.S. App. LEXIS 5407 (1963)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An employee has a duty of loyalty to their employer which requires them to act solely for the benefit of the employer in all matters connected with their employment. An employee breaches this duty by soliciting the employer's customers for their own future business before the employment relationship has terminated, and must account to the employer for any profits derived from such disloyal conduct.
Facts:
- Community Counselling Service, Inc. (CCS) employed Reilly as a regional sales representative responsible for securing fund-raising contracts from Catholic parishes.
- In late 1959, Reilly stopped submitting required daily activity reports to CCS.
- On January 4, 1960, Reilly informed CCS of his intention to resign, citing personal reasons, and it was agreed his employment would terminate on January 29, 1960.
- Between January 4 and January 29, while still employed by CCS, Reilly communicated with three parishes that were potential CCS clients: St. Ambrose, Our Lady of Mercy, and St. John the Evangelist.
- During this period, Reilly entered into agreements with these parishes to conduct fund-raising campaigns for them personally, commencing immediately after his employment with CCS ended.
- When confronted by a CCS vice president, Reilly indicated that the parishes wanted his personal services, not those of CCS, and asked, 'Do you expect me to walk out of here next Friday and not have a job?'
- Immediately following his resignation, Reilly began conducting the campaigns for the three parishes and received substantial fees for his services.
Procedural Posture:
- Community Counselling Service, Inc. (CCS) sued its former employee, Reilly, in the United States District Court, seeking an accounting of profits from allegedly disloyal conduct.
- Reilly filed a counterclaim seeking withheld salary and commission payments.
- The case was tried by the court without a jury.
- The District Court entered judgment for Reilly, holding that CCS had failed to sustain its burden of proof.
- The trial court specifically refused to consider admissions made by Reilly in a pre-trial deposition as substantive evidence.
- CCS (appellant) appealed the judgment to the United States Court of Appeals for the Fourth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an employee breach the fiduciary duty of loyalty by soliciting their employer's clients for their own future competing business before their employment has officially terminated?
Opinions:
Majority - Haynsworth, J.
Yes. An employee breaches the duty of loyalty by soliciting for themself future business which their employment requires them to solicit for their employer. Until the employment relationship is finally severed, the employee must prefer the interests of the employer to their own. Reilly's conduct was a clear violation of this duty, as he used his position and the notice period of his employment to secure valuable contracts for his own benefit that he was obligated to pursue for CCS. The court's reasoning had two parts. First, it held that the district court erred by refusing to consider Reilly's pre-trial deposition as substantive evidence. Under Federal Rule of Civil Procedure 26(d)(2), the deposition of an adverse party may be used for any purpose, including as substantive proof of the facts admitted therein. Reilly's deposition contained key admissions that he had secured the contracts for himself prior to his termination date. Second, based on this evidence, the court found that Reilly's actions constituted a clear breach of his fiduciary duty of loyalty. An employee cannot engage in self-dealing or solicit their employer's customers while still employed, even after giving notice of resignation. Any profits earned from such disloyal acts are considered the fruit of that disloyalty and must be disgorged to the employer.
Analysis:
This case strongly affirms the fiduciary duty of loyalty an employee owes to an employer, clarifying that this duty persists through the very last day of employment, even during a notice period after resignation. The decision establishes a clear precedent that employees, particularly in sales or client-facing roles, cannot use their position to divert business opportunities to themselves for post-employment benefit. It provides employers with a powerful remedy—disgorgement of profits—to deter such disloyalty. The case also serves as an important procedural clarification on the use of an adverse party's deposition as substantive evidence under the Federal Rules of Civil Procedure, not merely for impeachment.
Unlock the full brief for Community Counselling Service, Incorporated v. Robert Benedict Reilly