BFV Perspectives, Noncompete & Trade Secrets, | May 29, 2013

Former Outback Steakhouse Employee Not Necessarily “Down Under” For Allegedly Breaching Fiduciary Duty

The Georgia Court of Appeals recently held that summary judgment in favor of an employer is improper on a breach of fiduciary duty claim when there is no evidence that an employee’s outside business interests harmed the employer.  In Crippen v. Outback Steakhouse Int’l, L.P., 741 S.E.2d 280 (Ga. Ct. App. 2013), Kevin Crippen worked for Outback Steakhouse International, L.P. (“Outback”).  Mr. Crippen began working as a server and bartender at one of Outback’s restaurants in 1990, and worked his way up the “corporate ladder” for several years.  By December 2009, Mr. Crippen was promoted to Senior Vice President of Operations for Outback (“Senior Vice President”).

During his various employment positions with Outback between 1990 and 2009, Mr. Crippen never executed any formal, written employment contract.  In 2008 and 2009, Mr. Crippen purchased minority interests in three restaurants in Asia (where he was living and working for Outback at the time).  Mr. Crippen also purchased interests in or consulted with seven companies that supplied food and other materials to restaurant operators, including Outback.  Mr. Crippen did not disclose his interests in such companies to Outback.

When Mr. Crippen was promoted to Senior Vice President, Outback presented him with an Officer Employment Agreement (the “Employment Agreement”), which Mr. Crippen signed on January 1, 2010.  Less than one year later, in November 2010, Outback terminated Mr. Crippen’s employment.  Outback based its termination of Mr. Crippen’s employment on what it considered to be a violation of the Employment Agreement and Outback’s internal ethics policy.  More specifically, Outback discovered Mr. Crippen had invested in and consulted with restaurants and companies in Asia from whom Outback purchased certain products.

As a result, Outback filed suit against Mr. Crippen, seeking monies Mr. Crippen had made from his side investments and consulting in Asia, as well as any salary and other compensation Mr. Crippen had been paid between 2008 and 2010.  At the trial court level, both Mr. Crippen and Outback moved for summary judgment and the trial court granted summary judgment or partial summary judgment in favor of Outback on certain of its claims.  Mr. Crippen appealed.

One issue that the Georgia Court of Appeals addressed in relative detail was the trial court’s grant of summary judgment in favor of Outback on one of its claims for breach of fiduciary duty.  Outback had alleged, in part, that Mr. Crippen violated his fiduciary duty to Outback by owning and working for outside restaurants and suppliers.  The trial court granted Outback summary judgment, relying upon a term in the Employment Agreement requiring Mr. Crippen to “apply 100% of his ‘full business time, attention, energies and effort’” to Outback and further reasoning that Mr. Crippen had not fulfilled this contractual term.

Although the Court of Appeals affirmed the trial court’s grant of summary judgment with respect to Outback’s claim for breach of the Employment Agreement, finding that Outback could recover nominal damages even if it could not prove actual damages, the Court of Appeals reversed the trial court’s grant of summary judgment as to the breach of fiduciary duty claim and remanded the claim for trial.  In doing so, the Court of Appeals plainly stated that the breach of fiduciary duty claim was more than a breach of contract claim.  Consequently, the Court of Appeals stated Outback must demonstrate that “[i]rrespective of damages, there [was] a breach of a duty in the first instance.”  More specifically, the Court of Appeals found that, even if in 2010, Mr. Crippen’s contract “may have prevented him from owning an interest in restaurants or companies doing business with [Outback], it remains an open question as to whether, and to what extent, that [Mr.] Crippen’s outside interests were in any way contrary to, in competition with, or adverse to his employer.” Despite Outback’s allegations that Mr. Crippen realized “kickbacks” from his business interests, the trial court did not determine that the prices Outback paid for its goods, or the quality of the goods themselves, were anything out of the ordinary.  The trial court also did not determine that Mr. Crippen had anything to do with the vendors that were selected.  Thus, the Court of Appeals held that, there was no conclusion that Mr. Crippen “us[ed] his position for his own personal benefit to the detriment of his employer.” Accordingly, Outback had failed to prove any damages proximately caused by Mr. Crippen’s alleged breach, and, therefore, summary judgment on this breach of fiduciary claim was improper.

With this opinion, the Georgia Court of Appeals appears to have drawn a fairly clear line between what an employer must prove to establish an employee’s breach of his or her contractual obligations and what an employer must prove to establish an employee’s breach of his or her fiduciary duties.  In other words, this opinion indicates that even if an employee violates his or her contractual obligations and participates in outside business interests that are beneficial to the employee and appear to be suspect with respect to the employer’s competitive interests, a court may not find a breach of fiduciary duty without evidence that the employee’s alleged competitive activities actually harm the employer.

BFV Perspectives, Noncompete & Trade Secrets, | May 29, 2013