United States District Court, Northern District of Illinois, E.D
December 31, 1985
DONALD GUY, PLAINTIFF,
DUFF AND PHELPS, INC., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Donald Guy ("Guy") initially sued Duff and Phelps, Inc. ("Duff
& Phelps") and its Chairman of the Board and Chief Executive
Officer Claire Hansen ("Hansen"), charging
ing securities law violations (federal and state), breach of
fiduciary duty and common-law fraud — all arising out of Guy's
resale of his Duff & Phelps stock to the company upon termination
of his employment. Duff & Phelps responded in part with a
counterclaim against Guy, charging (Counterclaim ¶ 11) it had
been damaged by more than $10,000 by Guy's:
1. breach of his fiduciary duties; and
2. misappropriation of Duff & Phelps' facilities
for use in Guy's own business.
On July 12, 1985 this Court granted Duff & Phelps' motion for
summary judgment on each of Guy's claims. Guy has now moved under
Fed.R.Civ.P. ("Rule") 56 for summary judgment on Duff & Phelps'
counterclaim. For the reasons stated in this memorandum opinion
and order, Guy's motion is denied.
Duff & Phelps is an Illinois corporation in the service
business: providing investment research, credit ratings,
financial consulting and investment management. In 1978 Guy
joined Duff & Phelps as a vice president responsible for
developing Duff & Phelps' computer capability and for studying,
teaching and implementing new methods of quantitative analysis in
investment research and management.
In 1981 (while still employed by Duff & Phelps) Guy applied to
the Commodities Futures Trading Commission ("CFTC") to become a
registered commodities trading advisor. He then began a small
commodity trading business without informing anyone at Duff &
Phelps. He operated the business from his home and then from an
office in the basement of a friend's home (Guy Dep. 6-7, 292-94).
He did some of the work at Duff & Phelps' offices between 7:00
and 7:30 a.m., before Duff & Phelps' regular business hours (id.
at 154). During that time he did however use Duff & Phelps'
telephones and occasionally its computer (id. at 131, 154,
171-72), and he frequently used Duff & Phelps' telephones during
its regular business hours (Hansen Aff. ¶ 3; Guy Dep. 171).
By July 1983 Guy had 50 to 60 customers and managed portfolios
with total assets of about $4 million (Guy Dep. 105-06, 108,
124). Earnings from his business exceeded $95,000 in 1982 and
$43,000 during the first 8 1/2 months of 1983 (D. Ex. A).
Duff & Phelps did not learn of Guy's business until late May or
early June 1983, when Hansen questioned Guy about the early
morning phone calls he often received at work (Guy Dep. 148-51;
Hansen Dep. 33-34). Guy told Hansen about the business and
provided him with documents at his request (Guy Dep. 150-51;
Hansen Dep. 35-44). About a month later Hansen told Guy he would
have to abandon his own business if he wanted to stay with Duff
& Phelps (Guy Dep. 163-64), giving Guy another month to think
over his choice (id. at 164). On July 29 Guy met with Hansen
again and said he would not give up his own business (Hansen Dep.
61). Hansen then fired him effective December 31, 1983. That date
was later advanced to September 15, 1983 by agreement (at least
in the sense Guy was given a choice between a September 1 and 15
departure) (Guy Dep. 188-89, 245).
Subject Matter Jurisdiction
Guy maintains Duff & Phelps' counterclaim is permissive in Rule
13(b) terms, thus requiring an independent federal jurisdictional
basis. Guy then says the counterclaim falls outside this Court's
diversity jurisdiction because Duff & Phelps has not alleged in
good faith an amount in controversy exceeding $10,000. That
notion is wholly without merit.
Counterclaim ¶¶ 6 and 7 charge Guy violated his fiduciary
duties owed to Duff & Phelps as his employer. Guy contends
he has not breached any such fiduciary duty. Because Duff &
Phelps cannot recover any damages under that theory if Guy is
right, he reasons Duff & Phelps lacks the requisite amount
exceeding $10,000 in controversy.
Guy's argument totally misperceives the thrust of the
jurisdictional amount requirement. St. Paul Mercury Indemnity Co.
v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 590, 82 L.Ed.
845 (1938) (footnotes omitted) remains the leading authority on
The rule governing dismissal for want of jurisdiction
in cases brought in the federal court is that, unless
the law gives a different rule, the sum claimed by
the plaintiff controls if the claim is apparently
made in good faith. It must appear to a legal
certainty that the claim is really for less than the
jurisdictional amount to justify dismissal. The
inability of plaintiff to recover an amount adequate
to give the court jurisdiction does not show his bad
faith or oust the jurisdiction. Nor does the fact
that the complaint discloses the existence of a valid
defense to the claim. But if, from the face of the
pleadings, it is apparent, to a legal certainty, that
the plaintiff cannot recover the amount claimed, or
if, from the proofs, the court is satisfied to a like
certainty that the plaintiff never was entitled to
recover that amount, and that his claim was therefore
colorable for the purpose of conferring jurisdiction,
the suit will be dismissed.
Here Duff & Phelps' breach-of-fiduciary-duty claim seeks to
recover: (1) all Guy's profits (over $100,000) plus (2) damages
for the unauthorized use of Duff & Phelps' equipment.
Unquestionably that puts more than the jurisdictional amount into
Guy claims his proffered evidence establishes Duff & Phelps
must lose on the merits. But even if he were right (and the later
discussion shows he is not), his bizarre view of subject matter
jurisdiction would convert every successful summary judgment
motion by a diversity-jurisdiction defendant (and even many a
final judgment for such a defendant after trial) into a
jurisdictional dismissal. Pursued to its logical end, Guy's
position would foreclose federal courts from ever ruling for
defendants on the merits in diversity cases, for the very
decision that a plaintiff could not recover on those merits would
automatically telescope the case into a zero amount in
controversy and thus defeat subject matter jurisdiction.*fn3
Breach of Fiduciary Duty
This Court will therefore treat Guy's summary judgment motion
solely as an attack on the merits of Duff & Phelps' claim. Guy
asserts as a matter of law he did not breach any fiduciary duty
owed to Duff & Phelps. Duff & Phelps counters by saying genuine
issues of material fact preclude summary judgment.
ABC Trans National Transport, Inc. v. Aeronautics Forwarders,
Inc., 62 Ill.App.3d 671, 683, 20 Ill.Dec. 160, 169,
379 N.E.2d 1228, 1237 (1st Dist. 1978) states one version of the relevant
While acting as an agent or employee of another, one
owes the duty of fidelity and loyalty; accordingly, a
fiduciary cannot act inconsistently with his agency
or trust; i.e., solicit his employer's customers for
himself, entice coworkers away
from his employer, or appropriate his employer's
personal property. . . .
Much the same articulation is contained in the decision Guy Mem.
9 quotes, Patient Care Services, S.C. v. Segal, 32 Ill. App.3d 1021,
1029, 337 N.E.2d 471
, 478 (1st Dist. 1975):
The duties that an officer or director owe to his
corporation are so well established as to need no
citation of authority to support them. They include
the requirement of undivided, unselfish, and
unqualified loyalty, of unceasing effort never to
profit personally at corporate expense, of unbending
disavowal of any opportunity which would permit the
fiduciary's private interests to clash with those of
Guy advances three contentions in support of his position he
did not breach those standards:
1. His commodity trading activities did not compete
with Duff & Phelps' business.
2. He did not devote time belonging to Duff &
Phelps to his own business.
3. He did not use Duff & Phelps' name in his
commodity trading business.
This opinion will deal with each argument in turn.
1. Competition with Duff & Phelps
Guy advances two reasons why his commodity trading business
does not compete with any of Duff & Phelps' activities. Though he
might perhaps ultimately prove to be right, he cannot prevail at
this Rule 56 stage.
First Guy says his commodity trading business served only
individual clients, while Duff & Phelps primarily served
corporate and institutional clients.*fn5 But Hansen Aff. ¶ 11
Duff & Phelps has a division which manages
money for clients. This division has approximately
100 individual clients as well as institutional
That assertion alone leaves it to a factfinder's decision whether
Guy's customers represented a potential corporate opportunity
diverted from Duff & Phelps.*fn6
Guy next points out neither Duff & Phelps nor any of its
principals possesses the necessary license from CFTC to act as a
registered commodities trading advisor (Guy's Statement of
Material Facts ¶ 17). Hence Guy states his commodity trading
activities could not compete with Duff & Phelps' business. But
Duff & Phelps retorts (Hansen Dep. 99):
Duff & Phelps manage money of individuals, for
which we obtained a fee. Don Guy was managing money
of individuals for which we didn't obtain a fee.
That exchange highlights the nature of the parties' dispute
over the competitive effect of Guy's activities. In essence they
differ over the definition of the "relevant market." Guy focuses
only on investment advisors in the commodities trading field.
Because Duff & Phelps lacks the requisite licenses to offer
advice in that area, Guy is correct in saying his business does
not compete with Duff & Phelps in that limited sense.
But Guy's contention in that respect rests on the unstated
assumption that each of his customers had already opted for
commodities trading before Guy dealt with him or her, rather than
the classical model in which the investor examines the universe
of investment alternatives before actually committing funds to
one choice. In the latter model, Guy's solicitation of a
prospective investor, rather than disclosing his or her identity
to Duff & Phelps' new-business
personnel, does compete with that corporation's money
management services. With the record no further fleshed out than
it is now, there is at least a reasonable inference the "relevant
market" is the genus of money management generally, not the
species of commodities trading advice.
2. Guy's Use of Business Time
Guy Aff. ¶ 17 says:
My CTA activities never interfered with my duties or
obligations at D & P. In fact, all the while I
acted as a CTA, my D & P personnel reports,
evaluations and the like contained high praise for my
work and the performance of my duties. Further, any
CTA work I did at D & P was before or after D
& P's normal working hours of 8:45 a.m.-4:45 p.m.
But Guy earlier admitted he did devote some of his time to his
commodity trading business during Duff & Phelps' business hours
(Guy Dep. 154, 171):
Q: Okay. And then from 7:30 on, was there ever a
time when you devoted your energies to your CTA
business, rather than to the Duff & Phelps' business?
A: I'm sure there was.
Q: You made phone calls that related strictly to
your CTA business between the regular working hours
of 8:45 and 4:45 at Duff & Phelps, didn't you?
A: Sometimes, yes.
Hansen testified (Hansen Dep. 56) Guy admitted spending 15% of
his Duff & Phelps workday on his own business. Substantial calls
by Guy to brokers during business hours are reflected in Duff &
Phelps telephone records (D. Ex. C.).
Guy contends the amount of time he actually spent on his own
activities is irrelevant because he always finished his job
assignments at Duff & Phelps. On that issue, though, Duff &
Phelps answers (Hansen Aff. ¶¶ 8, 9):
8. Guy received above average performance evaluations about a
one and one half year period beginning in December of 1980. After
that, there were many complaints about his failure to complete
projects on time. Guy was continually behind on assignments, and
the problem continued for about one year until Duff and Phelps
finally had to take measures to correct it. In or about July of
1982, a computer committee consisting of key Duff and Phelps
personnel was established to monitor Guy's progress on his
assignments. Guy had to report to this computer committee weekly
as to whether he had completed assignments on schedule.
9. During the period of Guy's employment at Duff and Phelps,
Duff and Phelps was engaged in a number of activities that
required the development of new computer programs. There was not
always sufficient programming capability to meet these needs.
Analysts frequently had to develop their own programs because
they could not get assistance from the computer department.
It is at least a reasonable inference from those statements
that Guy's pursuit of his own business interests cut back on the
time he devoted to Duff & Phelps assignments at the very time
Duff & Phelps' need for Guy's services had increased. Gelfand v.
Horizon Corp., 675 F.2d 1108, 1110 (10th Cir. 1982) teaches:
An agent occupies a relationship in which trust and
confidence is the standard. When the agent places his
own interests above those of the principal there is a
breach of fiduciary duty to the principal.
In sum, Duff & Phelps has created a factual issue on that issue
3. Guy's Use of Duff & Phelps Property
Guy urges he never used Duff & Phelps' name to solicit
business. All the record discloses in that respect is that Guy
did identify his address on customer powers of attorney as "c/o
Duff & Phelps, Inc." (D. Ex. B). That might perhaps suggest a
kind of trading (albeit minimal) on Duff & Phelps' name and
More to the point, however, Complaint ¶ 11 really charges Guy
misappropriated Duff & Phelps' "facilities," so Guy's effort to
shift scrutiny to his use or nonuse of the corporate name is
really a red herring. On the misappropriation-of-property issue,
Guy admits he used Duff & Phelps' computer equipment to analyze
his commodity trading data (Guy Aff. ¶ 22). Guy argues that use
benefited Duff & Phelps by allowing him to evaluate the efficacy
of Duff & Phelps' statistical computer programs. But Duff &
Phelps effectively responds with a "thanks, but no thanks" answer
(Donehey Aff. ¶ 7):
The use of commodities data to check the types of
statistical programs Duff and Phelps uses is not
necessary. These statistical programs are easily
verified by comparison to textbook proofs. It is
unlikely that using commodities data to check
programs could be beneficial to Duff and Phelps.
Any misappropriation of Duff & Phelps' property — its
name or its computer or both — to advance his own interests
would breach Guy's duty of loyalty to Duff & Phelps. ABC Trans
National Transport, 62 Ill.App.3d at 683, 20 Ill.Dec. at 169, 379
N.E.2d at 1237. Once again Duff & Phelps has posed a question for
the trier of fact.
Duff & Phelps' evidentiary submissions establish the existence
of several genuine issues of material fact. Guy's motion for
summary judgment is denied. Finally, given the nature of the
factual disputes, the case does not seem a particularly apt one
for a set of Rule 56(d) specifications.