Gurland founded Storetrax.com - internet-based commercial real estate listing service in Maryland in 1998. Incorporated as a Delaware corporation in 1999.
He agreed for a group of investors to buy majority share. Became president and member of the Board of Directors.
Employment contract said that he had a year's worth of pay in case he was fired.
Two years later, he was removed as president, but stayed on the Board for another year.
Requested severance pay, but was denied it. He sued.
Board claimed he was not due severance pay because his job duties, title and salary changed.
Also, as Board member, they claimed he breached a fiduciary duty by suing the company.
Lower Court Held: For Gurland. Storetrax appealed.
There is a fiduciary duty of directors to the corporation.
However, situations arise where a corporate director may proceed with an individual interest that may conflict with those of the corporation on whose Board he sits.
When conflicts of interest arise, courts look closely if director's dealings are in "good faith and fair dealing". If conflict arises, director can find a "safe harbor" by disclosing to the corporation the conflict and important facts to the remaining shareholders or directors.
Gurland had a conflict as an aggrieved former employer and his duty as director of the corporation.
Gurland's seeking $150,000 severance pay was not in corporation's best interest, HOWEVER
Gurland notified Storetrax sufficiently of imminence of lawsuit.
Gurland's notification gives him the protections of "safe harbor".
HELD: Gurland receives severance pay.
Nugents owned a series of roofing companies. Russell and wife only shareholders, directors & officers
1977: Russell Nugent Roofing Inc. was incorporated; 1985: Corporation name changed to On Top Roofing; 1987: On Top Roofing ceased doing business; 1987: Nugents did business through new corporation RNR, Inc. 1988: Replaced by RLN Construction, Inc. 1989: RLN Construction was replaced by Russell Nugent, Inc.
Business was run out of Nugent's home
In 1986 Nugents paid themselves salaries over $100,000 each
Charged corporation $99,290 in rent for space in their home
K.C. Roofing was owed $45,000 for roofing supplies sold to On Top Roofing, which no longer existed.
K.C. asked court to pierce the corporate veil and hold Nugents personally liable.
District held for K.C. Nugents Appealed.
HELD: Affirmed. Nugents must pay K.C.
When corporation is used for an "improper purpose . . . to perpetuate injustice" and "avoid its legal obligations", corporate veil is pieced.
Here: 1. Nugents had control of all aspects of business; 2. Control was used to commit fraud or wrong or other positive legal duty, including an "unjust act"; 3. Breach of duty caused unjust loss or injury to plaintiff
Nugents were avoiding debts to plaintiffs.
Refused On Top's obligations to creditors.
This is unfair, unjust and inequitable to allow Nugent to hide behind corporate shield and avoid legal obligations to plaintiffs.