In North Dakota, Breaching Fiduciary Duties Can Be Very Costly

The North Dakota Supreme Court, in Thompson v. Schmitz, 2011 ND 70, recently upheld a significant award of attorney's fees under the state's Business Corporations Act because the district court determined than an officer/director of a corporation violated his fiduciary duties.  The defendant, the district court found, had violated his duty to the plaintiffs "to not use corporate assets preferentially, . . .violated his duty of loyalty, . . .diverted and misappropriated corporate funds, and acted fraudulently or illegally." The Court also determined that the Business Corporations Act permits courts to award expert witness fees,even where the expert did not testify. 

The case seems reasonably straightforward, but it struck me just how significant the attorney's fee award was relative to the investment.  The court explained:

The district court concluded Schmitz and RES converted both his $300,000 stream-of-income contribution to ARRK and the Thompsons' $150,000 capital contribution. The Thompsons were awarded half of the value of those contributions, as assets of ARRK, plus pre-judgment interest.

[¶8] The parties submitted briefs and the district court held a hearing to consider attorney's fees, costs, expenses, and disbursements. The court awarded the Thompsons $511,066.16 in attorney's fees and nontaxable expenses, and $80,648.16 in costs and disbursements, including fees and interest on the Thompsons' expert witness fees.

Note that the attorney's fees are more than three times the initial investment.  Word to the wise: sometimes, violating fiduciary duties can be very expensive.  As it should be.

--JPF