Foodcomm International v. Patrick James Barry
2003 WL 2012402, 2003 U.S. App. LEXIS 8387, 328 F.3d 300 (2003)
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Rule of Law:
Key employees, even those not designated as corporate officers, owe a fiduciary duty of loyalty to their employer, which is breached if they actively exploit their positions, solicit their employer's customers for a competing venture, or use company resources to establish that venture before their employment ends.
Facts:
- Patrick Barry and Christopher Leacy were senior sales representatives at Foodcomm, an importer of chilled Australian beef, and had exclusive control over the account of Empire Beef, one of Foodcomm's largest customers.
- In March 2002, negotiations for a new business deal between Foodcomm and Empire broke down.
- Leacy, tasked with mending the relationship, learned that Empire would no longer do business with Foodcomm but concealed this information from his employer.
- In May 2002, while still employed by Foodcomm, Barry and Leacy decided to seek 'alternative employment together' and contacted Empire Beef.
- Barry and Leacy proposed a plan to Empire to form a new company, Outback Imports, that would import beef for Empire, directly competing with Foodcomm.
- They used their Foodcomm computers and PDAs to prepare the business plan for Outback Imports, all while Leacy pretended to be 'smoothing things over' with Empire.
- Outback Imports was incorporated in July 2002, while Barry and Leacy were still employed by Foodcomm.
- Barry and Leacy resigned from Foodcomm in late August 2002 and immediately began operating Outback Imports as a division of Empire.
Procedural Posture:
- Foodcomm International filed a complaint in federal district court against Patrick Barry, Christopher Leacy, and Outback Imports, Inc.
- Foodcomm sought a preliminary injunction to enjoin Barry and Leacy from continued employment with Empire and Outback.
- Following a four-day hearing, the district court granted the preliminary injunction, finding that Foodcomm was likely to succeed on its claims that Barry and Leacy had breached their fiduciary duties to Foodcomm.
- Barry and Leacy, as appellants, brought an expedited appeal of the district court's injunction to the U.S. Court of Appeals for the Seventh Circuit, with Foodcomm as the appellee.
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Issue:
Do senior, non-officer employees breach their fiduciary duty of loyalty by secretly planning, soliciting a major customer for, and using company resources to develop a competing business while still employed?
Opinions:
Majority - Williams, Circuit Judge.
Yes. Senior, non-officer employees breach their fiduciary duty of loyalty by secretly planning and developing a competing business while still employed. As agents of their employer, employees owe a fiduciary duty of loyalty not to exploit their position for personal benefit or to hinder their employer's business. This duty extends beyond titled officers to key employees who possess significant autonomy and discretion, as Barry and Leacy did. Their actions—conspiring to create a rival company, concealing the loss of a major customer while soliciting that same customer for their new venture, and using company resources to develop their business plan—constitute clear breaches of this duty.
Analysis:
This case clarifies that the fiduciary duty of loyalty is not confined to formal officers and directors but extends to any employee whose position involves significant trust and discretion. The decision establishes that preparatory acts cross into an actionable breach when they involve active competition, such as soliciting the employer's customers or using company resources, before the employment relationship is terminated. It provides a strong precedent for employers seeking to enjoin former key employees who disloyally set up competing ventures while still on the payroll. This holding reinforces the principle that an employee's duty is to their current employer, not to their future business interests, up until the moment they resign.
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