In BCOWW Holdings, LLC v. Collins, plaintiffs sued a former member and his new company asserting breach of fiduciary duty and numerous other claims based in part on the defendants allegedly usurping a corporate opportunity. No. SA-17-CA-00379-FB, 2017 U.S. Dist. LEXIS 142618 (W.D. Tex. September 5, 2017). The plaintiff sought a preliminary injunction, and the magistrate recommended that it be denied.
The magistrate noted that under Texas law plaintiffs may obtain injunctive relief for breaches of fiduciary duty, but only if the requirements for an injunction are met. “To prevail on a claim for breach of fiduciary duty, a plaintiff must establish that (1) a fiduciary relationship exists between the plaintiff and defendant; (2) the defendant breached his fiduciary duty to the plaintiff; and (3) the defendant’s breach resulted in injury to the plaintiff or benefit to the defendant.” Id. The magistrate stated that the plaintiff’s primary argument was that the defendant breached his fiduciary duty by usurping a business opportunity. The magistrate stated: “As a founding member and officer of BCOWW, Collins owed a fiduciary duty to BCOWW to refrain from ‘usurp[ing] corporate opportunities for personal gain.’ To establish a breach of fiduciary duty for usurping a corporate opportunity, BCOWW must prove that Collins misappropriated a business opportunity that properly belongs to the company.” Id.
The defendant did not dispute that he undertook a venture and that it was a corporate opportunity that would have properly belonged to the plaintiff. Rather, he argued that the plaintiff did not have the financial resources to take advantage of the business opportunity and alternatively, he argued that the plaintiff abandoned the opportunity. The magistrate held that: “A corporation’s financial inability to take advantage of a corporate opportunity and the corporation’s abandonment of a business opportunity are two defenses to a suit alleging usurpation of a corporate opportunity.” The magistrate found that the defendant introduced evidence to at least raise a genuine issue of fact on these defenses. The magistrate, however, found that the evidence demonstrated that the defendant breached the fiduciary duty of good faith when he actively competed with the plaintiff while still a member of the company and without full disclosure to its members. Yet, the magistrate still held that the plaintiff was not entitled to an injunction because of a lack of irreparable harm:
An injunction, however, would still be inappropriate in this case. BCOWW cannot establish irreparable harm. First, as discussed above, monetary damages will fully compensate BCOWW for any harm allegedly suffered as a result of Collins’s actions. Second, Collins’s breach occurred in the past, and he is no longer a member or employee of BCOWW. Accordingly, BCOWW cannot establish a reasonable likelihood that Collins will commit further breaches of his fiduciary duty in the future, and effects from Collins’s past violations cannot serve as a basis for injunctive relief. BCOWW’s request for a punitive injunction should be denied.
Id.
