Gussin v. Shockey (D.M.D. 1989) [Duty of Loyalty/Conflict of Interest/Disclosure]
§ The Gussins entered into an arrangement with Shockey under which Shockey agreed to assist the Gussins in buying, maintaining, breeding and selling thoroughbred horses.
§ The Gussins were inexperienced with horses; Shockey had 20-years’ experience (he was to advise the Gussins as their agent)
§ It was later discovered that Shockey had taken “kickbacks” from sellers in transactions in which Shockey was representing the Gussins as buyers.
§ Shockey never disclosed that he was receiving additional “kickbacks/commissions” from the sellers in addition to the salary received from the Gussins
o Holding as to Breach of Fiduciary Duty
§ Breach of Fiduciary Duty by Shockey. Therefore, he will not be permitted to retain the benefits of this violation, and will be required to pay the plaintiffs the full amount he retained as “commissions/kickbacks”
§ Shockey, as an agent of the Gussins, owed duties to his principal to be (1) loyal, (2) to avoid conflicts of interest, (3) to act solely to further the interests of the principal, and (4) to disclose interest that he may have in agency matters.
o Holding as to Shockey’s counterclaim for salary
§ An agent is entitled to no compensation for conduct which is a breach of his duty of loyalty; if such conduct constitutes a willful and deliberate breach of his contract of service, he is not entitled to compensation ever for properly performed services for which non compensation is apportioned.
§ Shockey is entitled to no compensation for any services he may have rendered the Gussins
§ If the agent promotes his own interest at the expense of the principal’s, he violates the agency relationship and is subject to liability for any loss occasioned to the principal by reason of the agent’s breach. Restatement § 401.
· However, an agent is a fiduciary only to the extent of the subject matter of the agency.
§ If the agent is to receive ANY BENEFIT from a transaction in which he is serving his principal, the agent must FULLY DISCLOSE any interest he has in the transaction AND RECEIVE the CONSENT of his principal to proceed, even if the principal ultimately was to benefit from the transaction.
· Is it sound public policy that the agent to forfeit his commission even if the services rendered were valuable?
o The Restatement suggests that two rules apply in this area
§ (1) If the services are to be paid for with a salary apportioned by time, the agent is entitled to be paid for those periods or items properly completed before his renunciation or discharge.
§ (2) However, with unapportioned services, the agent is entitled to compensation only if the agent’s breach is not willful and deliberate.