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Mass. Superior Court Finds Breach of Fiduciary Duty Claim May Apply to CPAs and Other “At-Will” Employees


-- Christensen, et al v. Cox, et al provides new guidance, Nancy Reimer advises.
A Massachusetts Superior Court decision appears to establish that an at-will employee may owe a fiduciary duty to an employer in some circumstances, according to Nancy M. Reimer a Member in the Boston office of national law firm LeClairRyan.

“Even if the employee is a CPA, who is generally considered to be independent of his or her client, an ‘at- will’ employee may be liable for breach of fiduciary under the correct circumstances under the theories of agency law,” she explains. “This had been demonstrated in opinions issued by courts in other jurisdictions, like Delaware, which have also ruled that ‘at-will’ employees may be subject to a breach of fiduciary claim.”

“In Christensen, et al v. Cox, et al, the plaintiffs asserted six claims against Shawn E. Cox — a CPA and former employee of Clayton and Matthew Christensen — including breach of fiduciary duty,” notes Reimer, who defends professional malpractice claims against accountants, attorneys, financial advisors and other professionals, as well as breach of fiduciary duty claims and claims against corporate directors and officers. (LeClairRyan was not involved in this case.)

Cox moved to dismiss the complaint, contending, among other things, he did not owe the Christensens a fiduciary duty. “Generally, when a CPA engages in an audit or other activity on behalf their client, the CPA is considered to be independent by virtue of their position,” Reimer notes. “But in this case, Cox was acting in an in-house role, so he couldn’t rest on an assumption that he was independent. The facts and circumstances indicated he was acting as an employee and therefore owed a duty of honesty and fair dealing to his employer.”

“Cox was hired by Clayton and Matthew Christensen to run the daily operations of their company Rose Park, the Disruptive Innovation Fund and Disruptive Innovation, LLC (collectively “Rose Park”) in 2010,” Reimer writes in the firm’s Accountant and Attorney Liability News Brief - Winter 2018. “Cox’s responsibilities included working with outside legal counsel to prepare, review, and approve company documents on the Christensen’s behalf. The Christensens trusted Cox to ensure the accurate and complete implementation of their instructions and intentions.”

But in April 2013, without authorization, Cox instructed a junior lawyer at the law firm representing Disruptive Innovation to amend the company’s operating agreement, adding Cox as a “member” without disclosing this to the Christensens or to Disruptive Innovation, Reimer relates. Cox left his job at Disruptive Innovation at the end of May.

“Sometime thereafter, Cox shocked the Christensens when he demanded payment as a Class B Unit holder,” notes Reimer. Cox provided no consideration for the units and the Christensens claimed he had enough industry experience to know it would be unprecedented for a non-founding, non-investment, short-tenured employee to be gifted a permanent entitlement to profits, she adds.

The Massachusetts court agreed to dismiss some of the claims, but found the complaint plead sufficient facts to render the fiduciary duty claim plausible at the motion-to-dismiss stage, even though Cox was an ‘at-will’ employee. Among other cites, the court noted a Delaware decision, Triton Const. Co. v. Eastern Shore Elec. Servs., Inc., 2009 WL 1387115, which recognized that “key managerial employees” and even non-managerial employees may be liable for breaches of fiduciary duty based on hallmark principles of agency law. That decision also noted that “hallmark principles of agency law apply to traditional corporate fiduciaries, such as officers and directors, and to key managerial personnel.”

“With respect to the fiduciary duty claim, the court found the Complaint plead sufficient facts to render the fiduciary duty claim plausible at the motion-to-dismiss stage,” Reimer writes in the newsletter article. “As a fiduciary, Cox was obligated to disclose all material facts to the Christensens regardless of whether the Christensens could have discovered the facts by reading the documents. Although this case is in the early stages of litigation it is significant because it confirms that an ‘at-will’ employee, even one who is a CPA, may owe an employer a fiduciary duty depending on his or her role in the company and the facts and circumstances of the case.”

The full article is available here.