The opinion of the court was delivered by: ALFRED L. LUONGO
EDITOR'S NOTE: THE ORIGINAL SLIP OPINION CONTAINED ILLEGIBLE WORDS AND/OR MISSING TEXT.
This is a diversity action for breach of a fiduciary duty and diversion of a corporate opportunity. I disposed of various procedural motions in an earlier opinion. See 426 F. Supp. 1091 (E.D. Pa. 1977). The case is now before me on a motion by some of the defendants for summary judgment under Federal Rule 56. As required in considering this motion, I shall assess the evidence in a light most favorable to plaintiff, the non-moving party. See, e.g., Bishop v. Wood, 426 U.S. 341, 347, 48 L. Ed. 2d 684, 96 S. Ct. 2074 n.11 (1976).
The plaintiff, B. J. McAdams, Incorporated, is a closely held Arkansas corporation engaged in interstate trucking. Its president and chief operating officer is Bob J. McAdams, who, with his former wife, are plaintiff's sole shareholders. The principal defendant, Winston M. Boggs, was an employee of plaintiff in 1974 and 1975.
This case centers around Boggs' purchase (for himself and some of the other defendants, rather than for plaintiff) of an Interstate Commerce Commission (ICC) certificate of public convenience and necessity authorizing certain interstate trucking in twenty-six Eastern states. The certificate had been owned by W. W. Hughes of Cornwells Heights, Pennsylvania. Boggs met Hughes in March 1974 while in Pennsylvania on business for plaintiff and, on plaintiff's behalf, made inquiries regarding purchase of the certificate. According to Bob McAdams, he and Boggs then undertook extensive, but unsuccessful, negotiations with Hughes regarding purchase of the certificate by plaintiff. Hughes died in February 1975, whereupon Boggs began conducting negotiations with the Hughes estate to purchase the certificate for himself. In May 1975, the estate accepted Boggs' purchase offer.
Rather than sell the certificate outright, the Hughes estate formed Hughes Refrigerated Express, Inc., a Pennsylvania corporation, having Mary Hughes, the estate's administratrix, as its sole shareholder, and sought ICC approval to transfer the certificate to the corporation. Once that approval was received and the transfer completed, the estate would sell all of the stock in Hughes Refrigerated Express. The stock sale, unlike sale of the certificate itself, would not require ICC approval.
While the ICC considered the application to transfer the certificate to Hughes Refrigerated Express, Boggs attempted to find other persons who would invest in the stock purchase. He offered this opportunity to David E. Green, a Haines City, Florida, physician, who, along with other potential investors from Haines City assembled by Green, met with Boggs in Florida in June 1975 to discuss the investment opportunity. Eleven Haines City residents -- Green, Ralph T. Stalnaker, John W. Moore, Edward M. Schlein, Edward F. Jukes, J. C. Long, Hal G. Davis, Doris Beasley, R. V. Phillips, L. B. Carnes, and Robert E. Taylor (hereinafter collectively referred to as the investors) -- agreed to join in the stock purchase. Financing was obtained through a loan from a local bank, Exchange Bank of Central Florida. The investors appointed Boggs as "Trustee or agent to represent [them] in the acquisition of the [Hughes Refrigerated Express stock]",
and on June 24, 1975, while in Philadelphia on business for plaintiff, Boggs, as "trustee," executed the agreement of sale with Mary Hughes and made a down payment.
On approximately August 22, 1975, the ICC approved transfer of the certificate to Hughes Refrigerated Express. Shortly thereafter, on August 25, 1975, the closing took place in Cornwells Heights, Pennsylvania. Boggs signed the closing documents for the investors and paid the balance of the purchase price. Hughes Refrigerated Express then set up its offices in Haines City, and on September 2, 1975, Boggs and the investors, as "all of the Shareholders and Directors" of Hughes Refrigerated Express, adopted a resolution ratifying the actions of their agents with regard to the August 25 closing.
In October 1975, plaintiff instituted this action against Boggs, the eleven investors, Hughes Refrigerated Express, and Exchange Bank of Central Florida.
As amended, the complaint alleges that Boggs breached a fiduciary duty owed to plaintiff and diverted plaintiff's corporate opportunity to acquire the ICC certificate and asserts that, as a result, Boggs and the investors hold the Hughes Refrigerated Express stock in constructive trust for plaintiff. The plaintiff demands transfer of the stock to it upon its payment of the purchase price, demands an accounting and payment to it of all profits generated from use of the certificate, and asks for damages. Plaintiff also sought to void the loan agreement with Exchange Bank, but the action against the bank was dismissed on February 14, 1977 for lack of personal jurisdiction. See 426 F. Supp. at 1096-97, 1102. The investors and Hughes Refrigerated Express (but not Boggs have now moved for summary judgment.
Summary judgment may be granted
". . . if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976), cert. denied, 429 U.S. 1038, 50 L. Ed. 2d 748, 97 S. Ct. 732 (1977).
The record in this case consists of twenty-one depositions and numerous documentary exhibits. Having surveyed this record, I have concluded that the first part of Rule 56(c) -- requiring absence of material issues of fact -- is dispositive of this motion. The Third Circuit has repeatedly emphasized the importance of a total absence of material factual issues. See, e.g., Ettinger v. Johnson, 556 F.2d 692, 696-97 (3d Cir. 1977); Costlow v. United States, 552 F.2d 560 (3d Cir. 1977). See also Adickes v. S. H. Kress & Co., 398 U.S. 144, 153-61, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970). Of course, the presence of factual issues will not bar summary judgment if they are not material to the controlling legal issues of the case. Tarasi v. Pittsburgh National Bank, 555 F.2d 1152, 1156 (3d Cir. 1977), petition for cert. filed, 46 U.S.L.W. 3054 (U.S., Aug. 4, 1977) (No. 77-195). But if the fact question is material, "summary judgment may not be granted where there is the slightest doubt as to the facts." Tomalewski v. State Farm Life Insurance Co., 494 F.2d 882, 884 (3d Cir. 1974). I have concluded that the investors and Hughes Refrigerated Express (the moving defendants) have failed to meet this standard and that summary judgment there fore must be denied.
Recognizing that their liability is, in a sense, derivative of that of Boggs, the moving defendants have attacked plaintiff's case on two levels. First, they contend that on this record Boggs is not liable and that they cannot be found liable as a result. Second, they contend that, even if Boggs is liable, there is no basis for imposing liability on the investors or Hughes Refrigerated Express. I shall discuss each of these arguments in turn.
The moving defendants assert that Boggs cannot be held liable for two reasons. First, they contend that Boggs was not under a fiduciary duty to plaintiff with regard to acquisition of the Hughes certificate. Second, they contend that at the time Boggs acquired the certificate for himself, acquisition of the certificate was not a corporate opportunity of plaintiff.
Boggs' fiduciary relationship to plaintiff, if any, must result from the nature of his employment with plaintiff. Since this is a diversity action, the substantive law governing that relationship -- as well as that governing all other aspects of this case -- must be determined in accordance with Pennsylvania choice-of-law rules. See Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941); Griffin v. McCoach, 313 U.S. 498, 85 L. Ed. 1481, 61 S. Ct. 1023 (1941). Generally, those rules mandate that the substantive law of the jurisdiction predominantly concerned with a legal issue before the court should be applied to that issue. Jurisdictional concern is determined by a qualitative analysis of the contacts which each jurisdiction has with the transaction involved, focusing on the policies underlying each jurisdiction's laws with respect to that transaction and on the significance of each jurisdiction's factual contacts with the case insofar as they relate to the furtherance of that jurisdiction's legal policies. See Cipolla v. Shaposka, 439 Pa. 563, 267 A.2d 854 (1970); Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964); Lenherr Estate, 455 Pa. 225, 314 A.2d 255 (1974) (plurality opinion); Suchomajcz v. Hummel Chemical Co., 524 F.2d 19, 23 (3d Cir. 1975). The Pennsylvania Supreme Court adopted this choice-of-laws approach in its 1964 Griffith decision, and application of this rule has been somewhat uneven in cases decided since that time. See, e.g., Cipolla, supra. Generally, however, the Pennsylvania analysis seems to be in accord with that of the Second Restatement of Conflict of Laws (1971). See Suchomajcz, supra, at 23. With respect to determining what fiduciary duties arise out of an employment relationship, the most significant contacts seem to be those of the jurisdiction where the employment relationship is centered. This is especially so when the employer is a corporation of the jurisdiction where the ongoing employment relationship was maintained. See Restatement (Second) of Conflict of Laws §§ 188, 221, 291, 309 (1971). Plaintiff is an Arkansas corporation with its principal place of business in Arkansas. Boggs entered into his employment relationship with plaintiff in Arkansas, and, throughout the period of his employment, he worked out of plaintiff's corporate headquarters in that state. I conclude, therefore, that Arkansas has the predominant jurisdictional concern as to Boggs' relationship to plaintiff and that Boggs' fiduciary duties thus should be determined in accordance with Arkansas law.
Arkansas imposes strict fiduciary duties upon corporate officers and directors. See, e.g., Geominerals Corp. v. Grace, 232 Ark. 524, 531-34, 338 S.W.2d 935, 940-41 (1960); National Oil Co. v. Reeves, 228 Ark. 664, 670, 310 S.W.2d 242, 246 (1958); Mothershead v. Douglas, 215 Ark. 519, 221 S.W.2d 424 (1949). See also Arkansas Business Corporation Act, Ark. Stat. Ann. § 64-308 (liability of directors in certain cases). As the moving defendants point out, however, Boggs was not an officer or director of plaintiff, but was merely a corporate employee. Recognizing that fact, plaintiff asserts that Boggs' fiduciary status with regard to acquisition of the Hughes certificate arises from the scope of Boggs' agency relationship to plaintiff. As a general rule, "an agent is a fiduciary with respect to matters within the scope of his agency." Restatement (Second) of Agency § 13 (1958). As such, he "is subject to a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency." Id. § 387. This relationship was explained by the Supreme Court of Arkansas in Collins v. Heitman, 225 Ark. 666, 672-73, 284 S.W.2d 628, 633 (1955):
"An agent, regardless of how innocent his intentions may be, cannot place himself in a situation where personal interests conflict with the duties owed his principal. In the recent case of McHaney v. McHaney, 209 Ark. 337, [346,] 190 S.W.2d 450, [454,] 162 A.L.R. 1175, [1180-81 (1945)] we said: 'Everyone, whether designated agent, trustee, servant or what not, who is under contract or other legal obligation to represent or act for another in any particular business or line of business or for any valuable purpose must be loyal and faithful to the interest of such other in respect to such business or purpose. He cannot lawfully serve or acquire any private interest of his own in opposition to it. This is a rule of common sense and honesty as well as of law. The agent is not entitled to avail himself of any advantage that his position may give him to profit beyond the agreed compensation for his services. He may not speculate for his gain in the subject-matter of the employment. He may not use any information that he may have acquired by reason of his employment, either for the purpose of acquiring property or doing any other act which is in opposition to his principal's interest.'"
The question is whether Boggs was "under contract or other legal obligation to represent or act for [plaintiff]" with regard to acquisition of the Hughes certificate. Apparently Boggs had no formal employment contract with plaintiff spelling out his duties and responsibilities. In his deposition testimony, Boggs admitted that be did play a minor role in the acquisition of trucking rights for plaintiff but contended that negotiation of such acquisitions was not part of his job. See Boggs Dep., pt. 1 (Doc. No. 82), at 28-29. On the other hand, Bob McAdams' deposition testimony ascribed to Boggs a much greater role in trucking rights acquisition, although McAdams did admit that Boggs was more intimately involved in the creation of new trucking rights requiring the issuance of new ICC certificates than in the purchase of existing trucking rights and ICC certificates from other motor carriers. See McAdams Dep., pt. 1 (Doc. No. 81), at 50-64. More important, however, McAdams testified that Boggs was not only under a duty to purchase ICC certificates in general, but that he was under a duty to purchase the Hughes certificate in particular and that he was instructed to conduct negotiations with Hughes toward achievement of that end. See id. at 145, 153-57, 161-65, 169-70. It is apparent that there is a factual dispute as to the scope of Boggs' employment responsibilities. If it was his responsibility to purchase the Hughes certificate for plaintiff and he instead purchased it for himself, he breached his fiduciary duty to plaintiff. Resolution of this question is for the fact-finder at trial.
The moving defendants' second argument with regard to Boggs' liability is that, at the time Boggs acquired the Hughes operating rights for himself, that acquisition was not a corporate opportunity available to plaintiff. The defendants argue that there can be no liability for breach of a fiduciary duty through diversion of plaintiff's corporate opportunity if plaintiff had no corporate opportunity to be diverted. See, e.g., Little Rock Towel and Linen Supply Co. v. Independent Linen Service Co., 237 Ark. 877, 880-83, 377 S.W.2d 34, 36-38 (1964). In support of their argument that plaintiff lacked a corporate opportunity at the time of Boggs' purchase, the moving defendants assert that (a) the Hughes would not have sold the certificate to plaintiff, (b) plaintiff was financially unable to purchase the certificate, and (c) plaintiff had abandoned its efforts to obtain the certificate before Boggs made the acquisition.
The first of these three assertions is based on testimony from members of the Hughes family (e.g., D. Hughes Dep. (Doc. No. 89), at 20-23) that they weren't interested in selling to plaintiff because they were worried about plaintiff's financial condition and preferred to sell to a party who was not already a motor carrier. Defendants concede (Defendants' Reply Brief (Doc. No. 108) at 5), however, that there is testimony in the record to the effect that W.W. Hughes was interested in plaintiff's offer to buy the certificate (see McAdams Dep., pt. 1 (Doc. No. 81), at 113-14). Material facts are in dispute on this issue.
As to plaintiff's financial ability to purchase the certificate, the record does show that plaintiff had financial difficulties. A major problem was the withdrawal of credit by Walter E. Heller & Co., which had been lending plaintiff money prior to 1974. On July 8, 1974, Heller gave plaintiff notice that it was terminating its financing arrangements, but it repeatedly postponed the date of termination and eventually -- in the summer of 1975 (at about the time Boggs was negotiating purchase of the certificate for himself) -- formally agreed to enter into a new financing arrangement with plaintiff. McAdams Dep., pt. 2 (Doc. No. 105), at 233-46. The moving defendants' contention is that plaintiff's financial condition was so grave that plaintiff was incapable of purchasing the Hughes certificate. Funds for the purchase might have been obtained in a variety of ways, however -- e.g., by borrowing from various lending institutions or through sale of stock or debt instruments. It can hardly be said that this record conclusively establishes that plaintiff was totally unable to obtain financing from any source, and I shall not grant summary judgment on this issue.
The question whether plaintiff abandoned its efforts to secure the Hughes certificate is hotly disputed. Bob McAdams testified that he gave Boggs a major role in the negotiations because, "Well sometimes people, different people can get things done." McAdams Dep., pt. 1 (Doc. No. 81), at 146. He assumed that Boggs was talking to the Hughes family on plaintiff's behalf. See id. at 157-64. Nevertheless he himself called the Hughes on several occasions during 1975. Id. at 165-66 (April phone call), 170-72 (July phone call), 178-82 (August phone call). At the very least, McAdams' testimony creates a material issue of fact as to abandonment.
This record contains sufficient factual disputes with regard to Boggs' liability to preclude summary judgment. The moving defendants' contention that they cannot be found liable because Boggs is not liable must be addressed to the fact-finder at trial.
Proceeding to the second tier of their argument, the moving defendants contend that there is no basis for imposing liability on them even if Boggs is liable. In their view, the only possible basis for liability is tortious interference with contractual relations, a theory under which, they assert, plaintiff could not recover against them because they had no knowledge of the alleged contractual expectancy between plaintiff and the Hughes. See generally Restatement of Torts § 766 & Comment e (1939); Restatement (Second) of Torts §§ 766-774B (Tent. Draft No. 23, 1977); Mason v. Funderburk, 247 Ark. 521, 446 S.W.2d 543 (1969); Glenn v. Point Park College, 441 Pa. 474, 272 A.2d 895 (1971).