Henkel of Am., Inc. v. Bell

HENKEL OF AMERICA, INC., Plaintiff-Appellant, v. CRAIG M. BELL; KNIGHT CAPITAL PARTNERS CORP., Defendants-Appellees.

Case No. 19-1351

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

August 21, 2020

NOT RECOMMENDED FOR PUBLICATION

File Name: 20a0493n.06

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN

BEFORE: GIBBONS, KETHLEDGE, and BUSH, Circuit Judges

JOHN K. BUSH, Circuit Judge. Henkel of America ("Henkel") appeals the grant of summary judgment in favor of Craig Bell and Knight Capital Partners Corporation ("KCP") arising out of Bell's alleged breaches of his employment contract and fiduciary duties. According to Henkel, Bell breached his contractual and fiduciary obligations by playing both sides of a proposed sublicensing agreement between Henkel and KCP that culminated when Bell left Henkel to join KCP as an executive shortly before the deal fell through.

The district court granted summary judgment on the ground that Henkel failed to introduce evidence of damages proximately caused by Bell's conduct. Because damages are not an element of a claim for breach of fiduciary duty under applicable Delaware law, and because Henkel has introduced sufficient evidence of some entitlement to a remedy that satisfies the minimal evidentiary burden that applies to such claims, we REVERSE as to that count. We otherwise agree with the district court and therefore AFFIRM as to all other counts.

I.

Bell was an employee of Henkel's wholly owned subsidiary, Henkel Corporation, where, from 2010 until January 2015, he served as Vice President of Marketing & Technical Services for Henkel's Adhesive Technologies business unit in North America. That role entitled Bell to a salary of $165,000 as well as participation in Henkel's Executive Financial Planning program, its Executive Health Program, a Deferred Compensation plan, and other benefits. Bell also was eligible for incentive-based bonuses, and he received such a bonus—in the amount of $142,000—for his work in 2014 (his last year as a Henkel employee). Because of his position, Bell had access to Henkel's confidential information, including financial and strategic plans.

As a result of this access, and in exchange for his salary and benefits, Bell owed duties not to engage in conflicts of interest or disclose confidential information, as required by his employment contract, under which he was to "abide by any and all policies and procedures adopted by the [c]ompany." R. 40-2 at PageID 958. Henkel's Code of Conduct, in turn, provides that "[w]e demand of ourselves, and those with whom we associate, the highest ethical standards." R. 40-3 at PageID 989. It goes on to state: "all [Henkel] employees should avoid situations that may lead to a conflict between their personal interests and those of Henkel," and directs that Henkel employees "act in the best interests of Henkel to the exclusion of any personal advantage" during contacts with customers and competitors. Id. The Code of Conduct also prohibits "[t]he communication of confidential internal information . . . to unauthorized personnel either inside or outside Henkel," id. at PageID 1003, and requires that any conflict of interest, or potential for conflict of interest, be disclosed, id. at PageID 1015. Such conflicts of interest include "[a] secondjob providing services to or consulting with organizations doing business with or directly competing against Henkel . . . . Activities or engagements of this kind would never be permissible if such work or services were for a company you interact with as part of your job." Id.

To ensure compliance with this Code of Conduct, and as a condition of his employment agreement, Bell signed a Non-Solicitation and Non-Competition Agreement and a Nondisclosure and Invention Assignment Agreement. The latter contract required that Bell "use [his] best efforts . . . to not engage in outside employment or business interests that detract from [his] performance for [Henkel], or that create an actual or potential conflict of interest." R. 40-2 at PageID 964. It further prohibited Bell from "disclos[ing], utiliz[ing], or authoriz[ing] any disclosure of Confidential Information," which includes "any and all information, . . . having independent economic value to [Henkel] that is not generally known to, and not readily ascertainable by proper means by a person who can obtain economic value from its disclosure or use." Id. at PageID 964-65.

Prior to his resignation from Henkel in January 2015, Bell was considered to be a good employee. He had received no reprimands, warnings, criticisms, or complaints for his performance in his last year on the job, 2014. During that year Bell had maintained a heavy workload and had been required to travel frequently on behalf of Henkel.

But, Bell's job at Henkel was not Bell's only work concern in 2014. In fact, Bell wore two work hats, and one of them was not Henkel's. That is what led to this lawsuit.

The dispute centers around a proposed distribution agreement between Henkel and KCP that originated in early 2014 and fell apart shortly after Bell resigned from Henkel to become KCP's Chief Operating Officer. Bell was a longtime personal friend of KCP's founder and CEO, Fadi Nona, whom Bell introduced to his Henkel colleagues sometime in late 2013 or early 2014to facilitate a sublicensing agreement for technology used to clean oil and gas refineries.¹ Bell "coached" Nona and other KCP employees in how to communicate and negotiate with Henkel in an attempt to foster the transaction. Henkel officials knew that Bell had a personal friendship with Nona and that he had made the introduction that led to the proposed transaction.

At some point during negotiations over the sublicensing agreement, Bell took on more responsibilities on the KCP side of the deal. By March 2014, Bell was communicating with KCP using a personal, rather than his Henkel, email address—"sidecheese@gmail.com." From this personal email address, Bell discussed with Nona the possibility of Bell's "leav[ing] Henkel [to] come work with [KCP]," and Bell provided Nona with a document titled "KCP License Proposal to Henkel," telling her "[o]bviously this can not [sic] have come from me." R. 40-6 at PageID 1041. In August 2014—three months before his resignation—Bell began conducting business using a KCP email address and a signature block identifying him as KCP's COO. A series of emails between Bell and KCP employees suggests that Bell and KCP were aware that Bell's working for KCP could be problematic.²

At some point while he was employed by Henkel, Bell disclosed a confidential Henkel project called "Project King" to KCP, potentially as an example of his prior work. When another party to Project King discovered that Bell had disclosed this information, Henkel spent several thousand dollars on legal fees to rehabilitate the relationship with the third party. Henkel also suggests that Bell used proprietary information to prepare the presentation he provided to Nonawith the disclaimer that it "can not [sic] have come from me [(Bell)]." See R. 40-6 at PageID 1041; R. 40-7 at PageID 1045-48.

Bell's role ultimately shifted from Henkel employee to KCP executive when he resigned from Henkel and took the COO position at KCP on November 5, 2014. Bell has continued to serve in this capacity throughout this litigation. He had been set to receive an 80 percent increase in salary upon his transition to KCP, as well as an additional $250,000 bonus upon completion of the deal between Henkel and KCP. However, because the deal was never consummated, KCP never made any money and no one (including Bell) was compensated for his role at KCP.

The parties now dispute the value of the failed deal. In the complaint, Henkel alleges that the deal was "worthless" to Henkel, and that Bell's double-dealing led Henkel to pursue the deal for far longer than it otherwise would have. Specifically, Henkel argues that it became clear that the deal had no value once it discovered that, contrary to KCP's representations during negotiations, KCP did not possess licensing rights to certain technology that Henkel considered to be essential to the transaction. In contrast, Bell and KCP point to various internal Henkel documents and argue that the proposed deal would have been massively profitable for Henkel. They also note that Henkel continued to pursue a similar project after the deal with KCP fell through.

KCP ultimately sued Henkel KGaA, the parent company of both Henkel Corporation and Henkel, over the failed deal. See Knight Capital Partners v. Henkel AG & Co., 930 F.3d 775 (6th Cir. 2019).³ It was during discovery in that litigation that Henkel became aware of the scope of Bell's work for KCP before his resignation.

II.

Henkel brought suit against Bell and KCP, claiming that Bell breached his contractual and fiduciary obligations by moonlighting at KCP prior to his resignation. The complaint alleged nine counts. Of those, six were against Bell: (1) breach of the noncompetition agreement (Count I); (2) breach of the nondisclosure agreements (Count II); (3) breach of the prohibition on disclosing confidential information (Count III); (4) breach of the prohibition on outside employment comprising any conflict of interest (Count IV); (5) breach of the fiduciary duty of candor and loyalty (Count V); and (6) unjust enrichment (Count IX). Three claims were against KCP: (1) tortious interference with the contract of employment between Henkel and Bell (Count VI); (2) aiding and abetting the breaches of the nondisclosure and noncompetition provisions (Count VII); and (3) aiding and abetting the breach of fiduciary duty (Count VIII).

Bell and KCP moved for partial summary judgment, raising arguments as to all counts except Count V. They argued primarily that Henkel failed to prove that it suffered any harm because any alleged damages were incurred either by its wholly owned subsidiary and Bell's employer, Henkel...