Fiduciary Duty of General Manager

Author: LegalEase Solutions 

Introduction

Our client appears on behalf of Guardian Automotive Trim, a company which entered into a multimillion dollar contract with an entity called Solvit Group, LLC, for the performance of solvent reclamation. Since lawyers were not involved in drafting or reviewing, the contract lacked many of the standard terms to be found in multi million dollar contracts. Moreover, Solvit Group has failed to comply with applicable federal/state environmental laws. The General Manager (employee) of Guardian Automotive Trim entered into said contract without the company’s permission and his actions were ultimately detrimental to the company, and not in its best interest. Therefore, Guardian Automotive Trim would like to terminate the contract at issue.

Question presented

  1. Whether an employee (General Manager) has a fiduciary duty to act in the best interest of the employer.

Short Answer

  1. The General Manager (an executive employee) will likely be held to have a fiduciary duty to the corporation that is the same as that owed by officers and directors.

Discussion

EMPLOYEE’S (GENERAL MANAGER’S) FIDUCIARY DUTY TOWARDS HIS EMPLOYER (CORPORATION).

Corporate directors and officers occupy a fiduciary relationship to the corporation and its stockholders.   MCL §450.1541a of the Business Corporation Act, grants right of action to a corporation through or by a director, officer or stockholder against delinquent directors, officers or agents for violation of or failure to perform their duties. It reads in relevant part:

Sec. 541a. (1) A director or officer shall discharge his or her duties as a director or officer including his or her duties as a member of a committee in the following manner:

(a) In good faith.

(b) With the care an ordinarily prudent person in a like position would exercise under similar circumstances.

(c) In a manner he or she reasonably believes to be in the best interests of the corporation.

Officers and directors of a corporation have its affairs committed to their charge upon the trust and confidence that they will be cared for and managed, within the limits of the powers conferred by law upon the corporation, for the common benefit of all of the stockholders. Thompson v Walker, 253 Mich. 126 (1931).  Furthermore, executive employees (such as general managers) owe a corporation the same fiduciary duty that officers owe.  L.A. Young Spring & Wire Corp. v Falls, 307 Mich. 69 (1943),

In the case of L.A. Young Spring, supra, a manufacturer was engaged in the manufacture of automobile cushion springs. The corporation was engaged in the manufacture of automobiles which used the invention at issue. The executives held positions with the manufacturer. The executives claimed that the inventor invented and patented the spring constructions for cushion seats and backs involved in the present case. The manufacturer charged that the executives fraudulently, maliciously, and intentionally conspired with the inventor to deprive it of certain inventions in spring constructions for seat and back cushions and to convert and misappropriate such inventions to their own benefit by using the inventor as the pretended inventor. The court held that the patents were obtained through the breach of trust and wrongdoing of the executives and that the patents rightfully belonged to and were the property of the manufacturer and that it was entitled to all royalties received there from. The court held further that the executives knew of the value of the spring inventions and recognized that it was their duty to disclose to the manufacturer the information they obtained. The Court held in relevant part:

Directors and executive employees of a corporation owe a strict and full measure of duty to their principal.

Id. at 102 (Emphasis Added).

In Salvador v Connor, 87 Mich. App. 664 (1978) the Court discussed the relationship of officers vis-à-vis Corporations and held:

It is beyond dispute that in Michigan, directors and officers of corporations are fiduciaries who owe a strict duty of good faith to the corporation which they serve.  See 6 Callaghan’s Michigan Civil Jurisprudence (2d ed.), § 79, p 208, § 117, p 291. Salvador, supra, at 675.

The Court in Vicencio, M.D., v Jaime Ramirez, M.D, 211 Mich. App. 501 (1995), reiterated the importance of faith and trust as being the cornerstones of a fiduciary relationship and held:

Moreover, a fiduciary relationship arises from the reposing of faith, confidence, and trust and the reliance of one upon the judgment and advice of another.  Ulrich v Federal Land Bank of St Paul, 192 Mich. App. 194, 196 (1991). Relief is granted when such position of influence has been acquired and abused, or when confidence has been reposed and betrayed.  Smith v Saginaw Savings & Loan Ass’n, 94 Mich. App. 263, 274; 288 N.W.2d 6131(1979).  Vincencio, supra, at 508.

It is, therefore, beyond dispute that in Michigan, corporate directors, officers, and even executive employees with whom great trust and responsibility are vested are fiduciaries who owe a strict duty of good faith to the corporation which they serve.  Thus, the General Manager of Guardian Automotive Trim, as an executive employee of said company, will likely be held to the high standard of a fiduciary, just as an officer or director would be.  It is immaterial to this conclusion whether or not there is evidence of self-dealing.

Conclusion

The discussion above leads to the conclusion that an executive employee of a corporation has a fiduciary duty to act in the best interest of the corporate entity, similar (arguably equal) to that owed by corporate officers and directors.