Contracts

McLinden v Coco, 765 NE2d 606 (Ind Ct App 2002).

Facts: McLinden and Coco were shareholders in Southwick Homes, Ltd. (Southwick), a residential development corporation. The two combined to control eighty percent of Southwick stock, which was not traded publicly. Coco also owned Mutual Development Company, Inc. (Mutual), a general contracting company. In 1996, McLinden, on behalf of Southwick, signed an agreement with Whiteco Industries, Inc. (Whiteco) agreeing to develop a subdivision named "Morningside Woods" (the subdivision). A year later, Coco, on behalf of Mutual, agreed with Whiteco to develop the same subdivision.

McLinden sued Coco, alleging breach of fiduciary duty and tortious interference with a contract.

Holding: The court held (1) that Coco had breached his fiduciary duty to Southwick, but that (2) Coco had not tortiously interfered with the contract between Southwick and Whiteco.

The court found that, unlike a publicly traded corporation, Southwick was a "close corporation" and thus its shareholders owed a fiduciary duty to the corporation. Here, Coco breached this duty when he signed a separate agreement with Whiteco that appropriated "to his own use a business opportunity that in equity and fairness belong[ed] to the corporation."

The court also held that Coco had not tortiously interfered with the contract between Southwick and Whiteco. The court used a five-factor test that requires a party to show the following: (1) the existence of a valid and enforceable contract, (2) the defendant's knowledge of that contract, (3) the defendant's intentional inducement to breach the contract, (4) the absence of justification, and (5) damages resulting from the breach. The court focused on the third prong and stated that Southwick failed to show any evidence demonstrating that Coco had been the "moving force" that led to the 1997 agreement between Mutual and Whiteco.

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