This case considers whether a member of a corporation's board of directors breached his fiduciary duty owed to the corporation when he, removed as an employee of the corporation, filed suit against the corporation in order to enforce severance pay provisions of his employment agreement, pursued summary judgment b y default after the corporation failed to file a timely answer, and sought to enforce his money judgment, over the corporation's opposition, by attaching the bank account of the corporation . The Circuit Court for Montgomery County held that the board member did not breach his fiduciary duty. The Court of Special Appeals affirmed.
Gurland was a member of the board of directors an d an officer of Storetrax.com, Inc. After the termination of Gurland's employment as an officer, and a letter from Gurland to the board of directors indicating that a lawsuit would be filed if the matter of severance pay was not resolved before a date certain, Gurland filed suit seeking severance payment under the terms of an employment agreement. Through no fault of either party, the summons, complaint, and accompanying motion for summary judgment was not delivered timely to the corporation by its resident agent. When the corporation did not respond to the complaint or motion, summary judgment by default was entered against the corporation. Ten days later, Gurland enforced the judgment entered in his favor by filing a petition for writ of attachment.
In its extensive summary of the opinion, the Court stated:
It is well-settled that directors of a corporation owe a fiduciary duty to the corporation and its stockholders. This fiduciary relationship generally obligates directors of a corporation to act in the general interest of the corporation, and not for their individual benefit. Situations may arise, however, where a corporate director, despite the requirement that a director adhere strictly to his or her fiduciary obligations, may proceed with an individual plan of action even though the director's interests conflict directly with those of the corporation. When such a situation arises, a director may find "safe harbor" by disclosing to the corporation the conflict of interest and pertinent facts surrounding the conflict so that a majority of the remaining disinterested shareholders or directors may take action to protect the corporation's financial interests.
Under the circumstances of the present case, Gurland notified sufficiently Storetrax of the imminence of the filing of a lawsuit such that he may claim the protections of the "safe harbor" annunciated above. Respondent delivered to Storetrax on 11 December a letter outlining in detail his claimed entitlement to severance benefits under the termination provisions of the employment agreement. In this letter, Gurland stated specifically that "[i]f the issue remain[ed] unresolved as of [21 December 2001]," he would instruct his attorney to file suit in order to enforce the severance provisions of the employment agreement. This 11 December letter indicated unambiguously that litigation was imminent, and set a clear deadline for which action on the part of Storetrax's board of directors was required to avert suit. Storetrax engaged counsel, responded by letter to Gurland's claims, and otherwise braced for litigation as a result of the 11 December 2001 letter. There is no evidence in the record that Gurland knew that Storetrax had no actual knowledge of the lawsuit at the time he pressed for summary judgment. Nor is there any evidence that Gurland implemented insider information in pursuing his claims, or used his position as director to his advantage. To the contrary, every action taken by Gurland was entirely according to the applicable the Maryland Rules.
There are no general rules of law grounded on a director's fiduciary relationship with a corporation forbidding the director from becoming a creditor of that corporation, or otherwise enforcing his or her claims against it. As a creditor, he or she ought to have the same rights to enforce that claim as any other creditor. As such, Gurland acted within his rights when he filed a petition for writ of attachment at the earliest permitted opportunity after entry of summary judgment by default.
Nor was it a continuing breach of Gurland's fiduciary duties for him to refuse to relinquish voluntarily the garnishment in opposing the corporation's efforts to set aside the judgment. The mere fact that Gurland was a director of the corporation does not impose upon him a legal duty to acquiesce to the demands of the corporation which are adverse to his individual financial interests.
In addition, in what it termed "A Nod to Choice of Law Principles," the Court acknowledged that the lower court incorrectly applied Maryland, rather than Delaware, principles of law. However, the Court concluded that the outcome of the case would have been the same since there was no difference between Maryland and Delaware law with respect to the issues of fiduciary duty involved.
The opinion is available in PDF.