Louisiana Court Rules Sales Manager Owed Fiduciary Duty to Employer

The recent decided case of Duplessis Buick-GMC Truck, Inc. v. Chauncey offers Louisiana employers a powerful cause of action against highly trusted former employees for breach of fiduciary duty—one that is akin to an action to enforce noncompete agreements or trade secret laws but without statutory constraints.

Fiduciary duty is the highest duty known to the law. In Louisiana, employees ordinarily have a duty of loyalty to their current or former employers, but they do not have a fiduciary duty to their employers. Certain relationships, however, impose fiduciary duties on the participants, such as the duty that a trustee owes to a trust beneficiary. In Duplessis, the Louisiana Court of Appeal, First Circuit, found an exception to this general rule where an employer placed a high degree of trust in an employee that enabled the employee to manage the employer’s business concerns.

Background

Michael Chauncey worked for Duplessis Buick-GMC Truck, Inc., an automobile dealership, as the dealership’s used car manager. Chauncey “was responsible for evaluating customer trade-in cars, setting the trade-in price, and for selecting the used cars” to sell to other dealers or auction off. He was also “entrusted with the authority to transact business on behalf of and for the benefit of [Duplessis],” which Duplessis described as a relationship of high confidence. Chauncey allegedly engaged in a fraudulent scheme by “conspir[ing] … to defraud Duplessis and … receive[] ‘kickbacks’ in exchange for underselling the used car inventory,” depriving Duplessis of profits. Put another way, Duplessis asserted that Chauncey had engaged in a classic case of self-dealing.

Duplessis sued Chauncey for fraud and breach of fiduciary duty. Chauncey filed a motion to dismiss the complaint, which the trial court granted only in part. Chauncey appealed, and the First Circuit returned the case to the trial court and allowed Duplessis to file an amended complaint, which added allegations addressing Chauncey’s fiduciary status. Chauncey filed another motion to dismiss, and the trial court dismissed the amended complaint in its entirety. It is from that ruling that Duplessis appealed to allow the First Circuit to determine whether Chauncey was a fiduciary as a purely legal question.

The First Circuit’s Analysis

The Louisiana statute defining “fiduciary” lists a number of different roles, including “guardian, conservator, curator, receiver, trustee in bankruptcy,” to name a few, and, circularly, “any other persons acting in a fiduciary capacity.” The First Circuit was unpersuaded by Chauncey’s insistence on the exclusivity of the list because, in particular, the existence of a fiduciary relationship “depends upon the facts and circumstances of the case and the relationship of the parties,” given the language of the statute.

The First Circuit found the existence of a fiduciary relationship because “Chauncy was transacting business, not for his own benefit, but for the benefit of Duplessis,” which showed “a relation implying and necessitating great confidence and trust on the one part and a high degree of good faith on the other.” On that basis, the court permitted Duplessis to proceed with its claim, at least at the pleading stage.

Key Takeaways

This case reminds Louisiana employers of a powerful weapon to use against self-dealing sales employees with discretion over employer spending. If successful, a fiduciary breach claim would entitle a former employer to an accounting, a disgorgement of illicit revenues, compensatory damages, and injunctive relief.

One lesson in this case for a Louisiana employer is that when a highly trusted employee with a high degree of managerial responsibility departs, the employer may want to review the employee’s pre-departure conduct and transactions carefully. If the employer suspects any sort of business-related misfeasance, it may want to perform an investigation and consider legal remedies.