Tobacco Technology, Inc. v. Taiga International N.V. , 388 F. App'x 362 ( 2010 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-1690
TOBACCO TECHNOLOGY, INCORPORATED,
Plaintiff - Appellant,
v.
TAIGA INTERNATIONAL N.V.; THOMAS J. MASSETTI; MARIE-PAUL
VOUTE,
Defendants - Appellees.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Catherine C. Blake, District Judge.
(1:06-cv-00563-CCB)
Argued: May 13, 2010 Decided: July 20, 2010
Before DUNCAN and KEENAN, Circuit Judges, and Arthur L. ALARCÓN,
Senior Circuit Judge of the United States Court of Appeals for
the Ninth Circuit, sitting by designation.
Affirmed by unpublished opinion. Judge Duncan wrote the
opinion, in which Judge Keenan and Senior Judge Alarcón joined.
ARGUED: Thomas Matthew Wilson, III, TYDINGS & ROSENBERG, LLP,
Baltimore, Maryland, for Appellant. David B. Salmons, BINGHAM &
MCCUTCHEN, LLP, Washington, D.C., for Appellees. ON BRIEF:
Gregory M. Garrett, TYDINGS & ROSENBERG, LLP, Baltimore,
Maryland, for Appellant. Stanley J. Reed, William A. Goldberg,
LERCH, EARLY & BREWER, CHTD., Bethesda, Maryland, for Appellee
Thomas J. Massetti; Boyd T. Cloern, Bryan M. Killian, BINGHAM &
MCCUTCHEN, LLP, Washington, D.C., for Appellees Taiga
International N.V. and Marie-Paul Voûte.
Unpublished opinions are not binding precedent in this circuit.
2
DUNCAN, Circuit Judge:
This appeal arises from a district court’s grant of summary
judgment finding that the appellant’s breach of contract claims
failed as a matter of law and that its tort-based claims of
breach of fiduciary duties were time-barred. For the reasons
that follow, we affirm.
I.
“Because this appeal is from an order granting summary
judgment, we recite the facts in the light most favorable to the
non-moving party.” Garofolo v. Donald B. Heslep Assocs., 405
F.3d 194, 195 (4th Cir. 2005).
A.
Appellant Tobacco Technology International, Inc. (“TTI”) is
a closely held Maryland corporation founded in the 1970s. It
manufactures and distributes flavoring ingredients for use in
tobacco products. When its founder and president Duke Cassels-
Smith died in 1987, the presidency and a majority of the stock
transferred to his widow, Jeremy Cassels-Smith (“Ms. Cassels-
Smith”). Because of her lack of managerial experience, Ms.
Cassels-Smith hired Ronald Whitehead (“Whitehead”) to be TTI’s
president in 1991. Whitehead was also made a director. Ms.
3
Cassels-Smith assumed the title of chairwoman of the board, to
which the title of CEO was later added.
TTI’s bylaws provided that Whitehead, as president, had
“the responsibility for the active management of the business
and general supervision and direction of all of the affairs of
the Corporation.” J.A. 612. The bylaws also gave Whitehead the
express authority “to execute any documents requiring the
signature of an executive officer.” Id. Throughout his tenure,
Whitehead exercised this authority to enter into contracts on
TTI’s behalf, and, as acknowledged by Ms. Cassels-Smith, did so
without any oversight from TTI’s board of directors. By
contrast, Ms. Cassels-Smith’s own positions conferred no
substantive responsibilities. Her role, in her own words, was
that of a “[n]ag” who “just wanted to be kept informed about
everything.” J.A. 153.
Although the bylaws did not limit Whitehead’s ability to
manage TTI’s affairs, he did sign a nondisclosure agreement that
prohibited disclosure of its proprietary information. Part 3.B.
of the agreement provided in part that Whitehead could not,
without written consent of the board of directors,
disclose to others, or appropriate to his own use or
the use of others, any confidential information of
TTI. All information, regardless whether written,
pertaining to TTI’s business, including, without
limitation, information regarding customers,
prospective customers, customer lists, costs, prices,
pricing lists, earnings, products, product lists,
4
formulae, research and development, compositions,
machines, apparatus, systems, procedures, prospective
and executed contracts and other business
arrangements, and sources of supply are presumed to be
confidential information of TTI for purposes of this
Agreement.
J.A. 627 (emphasis added). Subject to the nondisclosure
agreement, Whitehead ran TTI’s affairs until his departure in
2003. 1 He conducted the day-to-day business of the company,
including entering into formal contracts and purchasing
facilities, without the input of Ms. Cassels-Smith or any other
officer or director of TTI. One of Whitehead’s responsibilities
as president was the management of TTI’s relationship with
Appellee Taiga International, N.V. (“Taiga”).
Taiga is a closely held Belgian corporation formed in 1992
with the aid of several TTI directors -- including Whitehead and
Ms. Cassels-Smith -- who became partial owners in their
individual capacities. Also contributing to its formation were
Thomas Massetti (“Massetti”), a fellow TTI director and the CEO
of Craftmaster Flavor Technology, Inc. (“Craftmaster”), which
produced flavoring ingredients for food products, and his
1
When Whitehead left TTI in March 2003, he was replaced as
president by Ms. Cassels-Smith’s son, George Cassels-Smith
(“George Cassels-Smith”).
5
longtime business associate, Marie-Paul Voûte (“Voûte”). 2
Taiga’s purpose was to serve as a distributor of both
Craftmaster’s and TTI’s products in Europe. Upon its formation,
Massetti was appointed its president, and Voûte its general
manager. These two individuals thereafter assumed day-to-day
control of Taiga’s operations.
In its first few years of operation, Taiga focused on
distributing its food-flavoring products in conjunction with
Craftmaster. Then, in 1996, Taiga entered into an arrangement
with TTI for the distribution of TTI’s tobacco-flavoring
products. This arrangement was not formalized in a written
contract, but was informally managed by Whitehead, Massetti, and
Voûte. Under the initial 1996 arrangement, Taiga would purchase
TTI’s flavoring ingredients at a profit to TTI, then repackage
the flavoring ingredients with its own finishing ingredients and
distribute the final product in Europe as a Taiga product.
Taiga would then make a second payment to TTI in the form of a
percentage commission of the final sale price. Taiga could only
sell its products in countries where TTI was not directly
selling its own products, and Taiga was prohibited from
producing tobacco flavoring ingredients.
2
Massetti and Voûte, together with Taiga, are the
defendants in this litigation.
6
A couple of years after the 1996 initial agreement, TTI
entered a period of financial difficulty. The difficulties
began in 1998, when Whitehead transferred one of TTI’s flavor-
chemists, Brian Hawking, from the United States to Ireland, and
provided him a laboratory. 3 Despite the payment of substantial
sums for Hawking’s laboratory and salary, Hawking developed no
flavors for TTI. As described by one TTI officer and director,
Hawking and his laboratory were “a drain on the company” that
did not provide “any benefit for TTI.” J.A. 550. This drain
contributed to the overall decline in TTI’s financial health
between 1998 and 2000. Notes from an April 1999 TTI board
meeting state that “the cash flow for 1998 and 1999 is tight.”
J.A. 690. Also, from 1999 to 2000, TTI’s pre-tax profits fell
from a $677,000 gain to a $17,000 loss. During that same
period, TTI borrowed over a million dollars from Massetti and
Whitehead, and also came within forty-eight hours of declaring
bankruptcy before being rescued by an influx of private capital
from other directors. Although George Cassels-Smith was later
to opine that TTI’s financial position during this time was
“beautiful,” J.A. 356, Ms. Cassels-Smith acknowledged these
financial difficulties, stating that TTI was “losing business
3
Hawking’s employment contract contained a nondisclosure
provision identical to Whitehead’s.
7
hand over fist,” J.A. 186, was “constantly borrowing from Peter
to pay Paul,” J.A. 189, and was “going downhill in a toboggan,”
J.A. 269. Other TTI officers and directors echoed this view. 4
While TTI was experiencing financial troubles, Whitehead
sought to negotiate changes to TTI’s 1996 initial agreement with
Taiga. These efforts occurred on two separate occasions. 5
First, in February 2000, Whitehead agreed with Massetti and
Voûte to several modifications to the arrangement. We will
refer to this revised agreement as the “Proposed Agreement.” 6
Under the Proposed Agreement, Taiga could develop its own
flavors for use in finished tobacco products and market those
products in European countries where TTI was selling its own
products directly. In exchange, Taiga would continue to
purchase TTI’s flavoring ingredients and pay commissions on
them. The three individuals further agreed to change the method
4
For example, Thomas Cravotta, who was a Vice President of
TTI in 1998, admitted that “in the period around 2000 TTI was
experiencing financial difficulties.” J.A. 551. Massetti
further noted that as of August 2000, TTI was “in serious
financial trouble.” J.A. 290.
5
Like the 1996 initial agreement, these modifications were
not formalized in written contracts.
6
TTI has dubbed this agreement the “London Proposal,”
presumably because Whitehead met with Massetti and Voute in
London to discuss it. For ease of reference, however, we have
adopted the district court’s terminology.
8
for calculating the commissions that Taiga would pay to TTI.
Under the Proposed Agreement, Taiga would pay TTI only for the
raw cost of TTI’s flavoring ingredients if the final Taiga
product comprised more than 30 percent of TTI’s ingredients. If
the final product comprised less than 30 percent of TTI’s
flavoring ingredients, Taiga continued to pay TTI a percentage
commission.
Whitehead informed the Cassels-Smiths of the terms of the
Proposed Agreement. Recognizing that Whitehead had the
authority to negotiate on behalf of TTI, Ms. Cassels-Smith
agreed to its terms. She told Whitehead, however, that she
wanted George Cassels-Smith to be a part of any further
decisions on TTI’s behalf regarding the arrangement with Taiga. 7
Despite Ms. Cassels-Smith’s request, Whitehead proceeded
alone in August 2000 to finalize the agreement with Massetti and
Voûte. The “Final Agreement” adopted the modifications agreed
upon in the Proposed Agreement and added two additional
components. 8 First, Whitehead agreed to allocate Hawking to
Taiga to develop flavors. In exchange, Taiga would assume TTI’s
7
The record is unclear as to the position George Cassels-
Smith held during the year 2000.
8
TTI refers to the Final Agreement as the “2000
Transaction.” Again, we adopt the district court’s terminology.
9
financial responsibility for Hawking’s laboratory and associated
costs, and would gradually supply Hawking independent
compensation as TTI concomitantly reduced his salary. Taiga
would continue to purchase TTI products and would pay
commissions to TTI on all products containing either a TTI
flavor or a Taiga flavor developed by Hawking. Second,
Whitehead agreed to another change to the methodology for
computing TTI’s commissions. Whereas previously the commission
was based on the final sale price of the Taiga product, now it
would be based on the percentage of TTI materials incorporated
into the product. 9
After the Final Agreement was reached, Hawking created
sixty-nine new flavors for Taiga. Taiga paid TTI commissions on
9
This new arrangement created more variability in the
amount that TTI could expect to profit on commissions. As the
district court explained,
Under the previous arrangement, if a Taiga flavor sold
for $100, and TTI received a 15% commission on the
sale price, TTI would receive $15 for that sale.
Under the new arrangement, TTI would only receive its
commission from the portion of that $100 that accounts
for raw material costs. Raw materials in a Taiga
flavor may account for anywhere from 5% to 70% of the
flavors selling price.
Tobacco Tech., Inc. v. Taiga Int’l N.V., 626 F. Supp. 2d 537,
544 n.13 (D. Md. 2009). Accordingly, TTI could receive 15
percent of anywhere from 5 to 70 percent of the sale price --
here, from ¢75 to $10.50. Id.10
these flavors, and also paid TTI for the expenses associated
with Hawking’s laboratory.
In March 2003, George Cassels-Smith became president of
TTI. In March 2005, Taiga informed TTI that it was ending their
relationship. Taiga then attempted to remit a payment to TTI
for TTI’s flavoring ingredients, which Taiga computed under the
terms of the Final Agreement. TTI objected to this payment,
arguing that under the terms of the agreement it believed to
control the relationship, the Proposed Agreement, Taiga had not
paid enough. Taiga responded that the Final Agreement
controlled the relationship, not the Proposed Agreement, and
that its payment was correctly calculated. TTI then claimed
that it had never heard of the Final Agreement and that it was
invalid. After an unsuccessful effort to resolve the
differences over which agreement controlled, TTI commenced the
present litigation.
B.
In March 2006, TTI filed a five-count complaint against
Taiga, Massetti, and Voûte in the United States District Court
for the District of Maryland. In Count I, TTI alleged a breach
of contract by Taiga, in that Taiga had failed to abide by the
terms of the controlling agreement between the parties, the
Proposed Agreement. In Count II, TTI alleged a breach of a
11
fiduciary duty by Taiga, in that Taiga had failed to disclose
the existence of the Final Agreement to TTI. In Count III, TTI
alleged a breach of a director’s duty by Massetti, for failing
to disclose the existence of the Final Agreement to TTI while
serving as a TTI director. In Count IV, TTI alleged that Taiga
and Voûte aided and abetted Massetti’s breach of fiduciary
duties. In Count V, TTI alleged a misappropriation of trade
secrets by Taiga and Voûte, by obtaining and using flavors that
Hawking developed after the Final Agreement. TTI thereafter
filed an amended complaint adding a Count VI, in which it sought
a declaration that the Final Agreement was invalid.
The defendants filed two summary judgment motions, one by
Massetti and one by Taiga and Voûte, challenging all counts.
Ultimately, the district court granted defendants’ motions.
First, the district court rejected TTI’s argument that the Final
Agreement was invalid and therefore could not control the
relationship between TTI and Taiga. The district court
disagreed with TTI that Whitehead either lacked the authority as
TTI’s agent to enter into the Final Agreement, or that it was
not saved from being void or voidable under Maryland’s
Interested-Director Statute, Md. Code Ann., Corps. & Ass’ns § 2-
419. Consequently, the district court found Counts I and VI
12
failed as a matter of law, as well as components of Counts II
and III. 10
As to TTI’s tort claims, the district court determined that
they had not been timely filed, and were thus barred. In doing
so, the district court rejected TTI’s argument that the
limitations period was tolled because Whitehead’s knowledge of
the Final Agreement could not be imputed to it. Accordingly,
the district court granted summary judgment to Taiga, Massetti,
and Voûte on all claims.
TTI now appeals, challenging the district court’s
determinations on Counts II through VI.
II.
We “review[] a district court’s decision to grant summary
judgment de novo, applying the same legal standards as the
district court.” Pueschel v. Peters, 577 F.3d 558, 563 (4th
10
Count II alleges that Taiga breached fiduciary duties to
TTI, and states three different claims of breach. First among
these is that Taiga “fail[ed] to disclose and actively
conceal[ed]” the breach of the Proposed Agreement. J.A. 79.
Similarly, in Count III, TTI alleges that Massetti breached his
fiduciary duties to TTI, and states nine different claims for
breach. First among these is that Massetti “fail[ed] to
disclose the breaches of contract” by not telling TTI that Taiga
was operating under the terms of the allegedly invalid Final
Agreement. J.A. 81. Upon finding that the Final Agreement was
valid, the district court found that these claims failed along
with the contract claims in Counts I and VI.
13
Cir. 2009). “Summary judgment is appropriate ‘if the pleadings,
the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a
matter of law.’” Equal Rights Ctr. v. Niles Bolton Assocs., 602
F.3d 597, 600 (4th Cir. 2010) (quoting Fed. R. Civ. P. 56(c)).
When a case involves our diversity jurisdiction, we apply the
law that would have been applied by the state court in the state
where the district court sits. Volvo Constr. Equip. N. Am.,
Inc. v. CLM Equip. Co., Inc., 386 F.3d 581, 599-600 (4th Cir.
2004). Neither party disputes that Maryland’s substantive law
controls, so we apply it here. See Am. Hot Rod Ass’n, Inc. v.
Carrier, 500 F.2d 1269, 1277 n.5 (4th Cir. 1974) (declining to
apply substantive law other than that of the state in which the
district court sat, because no argument for applying different
substantive law was made to the district court).
III.
On appeal, TTI challenges each of the district court’s
determinations: that the Final Agreement controlled the
relationship between TTI and Taiga, and that the remaining tort
claims are time-barred. We address both arguments below.
14
A.
We begin with TTI’s contention that the district court
erred by determining that the Final Agreement controls the
relationship between TTI and Taiga. TTI advances alternative
arguments in this regard. First, it contends that the Final
Agreement is invalid because Whitehead lacked authority to agree
to it on TTI’s behalf. Second, TTI contends that the Final
Agreement is an interested-director transaction that cannot be
saved from being void or voidable by the statutory safe harbor
provided in Maryland’s interested-director statute, Md. Code.
Ann., Corps. & Ass’ns § 2-419(b)(2).
1.
We first address the question of Whitehead’s authority to
bind TTI in the Final Agreement. Under Maryland law, “[a]n
agent’s authority to act must come from the principal.”
Progressive Cas. Ins. Co. v. Ehrhardt, 518 A.2d 151, 155 (Md.
Ct. Spec. App. 1986). “[T]he authority conferred upon the agent
by the principal can take two forms: actual authority or
apparent authority.” Id. A person can be deemed an agent based
15
on either. 11 Jackson v. 2109 Brandywine, LLC, 952 A.2d 304, 322
(Md. Ct. Spec. App. 2008).
“Actual authority is that which is actually granted by the
principal to the agent, and it may be express or implied.” Homa
v. Friendly Mobile Manor, 612 A.2d 322, 333 (Md. Ct. Spec. App.
1992). Express authority is conferred by an “express
appointment and acceptance thereof.” Med. Mut. Liab. Ins. Soc’y
of Md. v. Mut. Fire, Marine & Inland Ins. Co., 379 A.2d 739 (Md.
App. 1977). Implied authority is derived “from the words and
conduct of the parties and the circumstances.” Id.We begin with express authority. As a general matter,
Whitehead enjoyed a broad grant of express authority under TTI’s
bylaws, which gave him “the responsibility for the active
management of the business and general supervision and direction
of all of the affairs of the Corporation.” J.A. 612. Moreover,
the bylaws gave Whitehead the “express authority to execute on
TTI’s behalf any documents requiring the signature of an
executive officer.” Id. Throughout his tenure, Whitehead
11
TTI argues that Whitehead lacked both actual and apparent
authority. As we have said, a person can be deemed an agent
based on either form. Jackson, 952 A.2d at 322. Because TTI
fails to demonstrate that Whitehead lacked actual authority --
in either express or implied form -- we do not reach its
argument regarding Whitehead’s apparent authority.
16
exercised this authority to enter into contracts on behalf of
TTI. As Ms. Cassels-Smith acknowledged, Whitehead was able to
do so without needing any approval from its board of directors.
Perhaps for these reasons, TTI does not argue that Whitehead
lacked authority to agree to the Final Agreement because he had
no power to form agreements on his own. Rather, TTI makes a
narrower argument, contending that Whitehead exceeded the scope
of his express authority because he contravened the scope of his
nondisclosure agreement, which delimited his express authority
in a key respect. Specifically, TTI argues that by agreeing to
have Hawking produce flavors for Taiga while Hawking remained on
TTI’s payroll, Whitehead disclosed TTI’s “trade secrets” in
contravention of his nondisclosure agreement’s prohibition that
he not disclose TTI’s “confidential information” without its
written consent. J.A. 627. As a necessary threshold premise to
this argument, TTI contends that all flavors developed by
Hawking while he remained on its payroll were its own trade
secrets. We do not agree with this premise.
In Maryland, the law of trade secrets gives a person a
property interest in his trade secret. See Alleco, Inc. v.
Harry & Jeanette Weinberg Found., Inc., 639 A.2d 173, 180 (Md.
Ct. Spec. App. 1994) (noting that “confidential business
information constitutes property of the company and . . . its
premature and improper disclosure can constitute a
17
misappropriation of corporate property); see also Carpenter v.
United States, 484 U.S. 19, 26 (1987) (“Confidential information
acquired or compiled by a corporation in the course and conduct
of its business is a species of property to which the
corporation has the exclusive right and benefit.” (internal
quotations omitted)). The interest is in “information” that
“derives independent economic value, actual or potential, from
not being generally known to, and not being readily
ascertainable by, other persons who can obtain economic value
from its disclosure or use” and “[i]s the subject of efforts
that are reasonable under the circumstances to maintain its
secrecy.” LeJeune v. Coin Acceptors, Inc., 849 A.2d 451, 459
(Md. 2004) (quoting Md. Code Ann., Comm. Law § 11-1201(e)). The
subject matter of a trade secret
may be an industrial secret like a secret machine,
process, or formula, or it may be industrial know-how
(an increasingly important ancillary of patented
inventions); it may be information of any sort; it may
be an idea of a scientific nature, or of a literary
nature or it may be a slogan or suggestion for a
method of advertising; lastly, the subject-matter may
be the product of work, or expenditure of money, or of
trial and error, or the expenditure of time.
Bond v. Polycycle, Inc., 732 A.2d 970, 973 (Md. Ct. Spec. App.
1999) (internal quotations omitted).
As an initial point, TTI is correct that Whitehead’s
nondisclosure agreement placed a limit on his general
contracting authority by prohibiting him from disclosing
18
information that would constitute its trade secrets. The
nondisclosure agreement prevented Whitehead from disclosing
“confidential information,” which is defined as “[a]ll
information, regardless whether written, pertaining to TTI’s
business, including, without limitation, information regarding
customers, prospective customers, customer lists, costs, prices,
pricing lists, earnings, products, product lists, formulae,
research and development, compositions, machines, apparatus,
systems, procedures, prospective and executed contracts and
other business arrangements, and sources of supply . . . .”
J.A. 627. The issue, however, is whether Whitehead disclosed
any information that could constitute a trade secret in the
Final Agreement. As we explain, he did not.
Under Maryland law, for Whitehead to have bargained away
TTI’s trade secrets, he must have bargained away TTI’s property,
in the form of information worthy of concealment from
competitors that TTI had developed and possessed. LeJeune, 849
A.2d at 459. While the information in question could be defined
quite broadly, see Bond, 732 A.2d at 973, it must have been
possible for TTI to withhold it. Yet, TTI concedes that Hawking
had not developed any flavors at the time of the Final
Agreement. Further, TTI does not contend that the sixty-nine
flavors at issue were “products” or “formulae” that existed as
ideas in Hawking’s mind at the time of the Final Agreement. See
19
Oral Arg. Tr. (“The asset that was given away was flavors that
had yet to be developed . . . . There was no agreement to give
away flavors that had been developed prior to that time.”).
Accordingly, it is undisputed that these flavors did not exist
in any form, written or unwritten, when Whitehead agreed to the
Final Agreement. While true that TTI employed Hawking for the
purpose of developing flavors, trade secrets-law could only
protect the flavors that Hawking had developed for TTI -- to any
extent -- at the time of the Final Agreement. See Alleco, 639
A.2d at 180; see also Carpenter, 484 U.S. at 26. As Hawking had
created nothing for TTI while working in Ireland prior to the
Final Agreement, there were no trade secrets for Whitehead to
bargain away. 12 Thus, we find that TTI has failed to show that
Whitehead lacked express authority to enter into the Final
Agreement.
We now consider implied authority. Here, we have little
difficulty disposing of TTI’s argument, for it is essentially a
12
TTI raises a secondary argument that Whitehead breached
his nondisclosure agreement because he suborned Hawking to
violate Hawking’s own nondisclosure agreement. For the reasons
we have provided, Whitehead did not. Hawking was not compelled
by the Final Agreement to give Taiga any secrets that he
possessed in the form of research or development of any flavors.
Rather, he was allocated to Taiga for the purpose of creating
new as-yet-to-be-created flavors for them. Whatever concerns
may have been raised by this allocation, they did not implicate
the misappropriation of trade secrets.
20
recasting of the argument against Whitehead’s express authority.
TTI’s argument on this point relies on the case of Bortner v.
J.C. Leib Co., Inc., where the Maryland Court of Appeals held
that an agent who gives away the principal’s property engages in
an “extraordinary transaction” that exceeds the scope of the
agent’s implied authority. 126 A. 890, 896 (Md. 1924). Here,
TTI contends that Whitehead similarly engaged in an
extraordinary transaction because he bargained away its trade
secrets. We are not persuaded.
Assuming without deciding that an agent who bargains away
his principal’s trade secrets engages in an extraordinary
transaction, TTI has failed to demonstrate that Whitehead
bargained away trade secrets here, for reasons already
discussed. Instead, TTI has put forward a circular argument: it
contends that the sixty-nine flavors Hawking developed are its
own trade secrets because the Final Agreement is void as an
extraordinary transaction, but then argues that the Final
Agreement is extraordinary because it provided Taiga with TTI’s
trade secrets. In this, TTI again presumes an answer to the
threshold question whether Whitehead bargained away trade
secrets when he agreed to have Hawking develop flavors for
Taiga. As he did not, there is no basis to believe the Final
Agreement is an extraordinary transaction.
21
Accordingly, we find that TTI has failed to show that
Whitehead lacked actual authority to act as TTI’s agent when he
agreed to the terms of the Final Agreement.
2.
We next address whether Maryland’s interested-director
statute, Md. Code Ann., Corps & Ass’ns § 2-419(b), applies to
the Final Agreement. This statute creates a safe harbor
provision under which a transaction entered into by a director
who has a conflict of interest is not void or voidable if “the
contract or transaction is fair and reasonable.” Id. § 2-
419(b)(2). It is undisputed that Whitehead had a conflict of
interest because he was a director of both TTI and Taiga when he
agreed to the Final Agreement. Accordingly, the only issue is
whether the Final Agreement is fair and reasonable. 13 TTI
13
TTI also argues that the Final Agreement is void or
voidable because, despite his conflict of interest, Whitehead
took steps to prevent TTI’s other directors from learning of the
Final Agreement when he ignored Ms. Cassels-Smith’s request that
George Cassels-Smith be included in any discussions with Taiga
after the Proposed Agreement. This argument invokes the other
provision of section 2-419(b), which provides that an
interested-director transaction is not void or voidable if the
board of directors is informed of the transaction and ratifies
it. Whatever the merit of this contention may be, it is
irrelevant to our determination.
Section 2-419(b) provides two statutory safe harbors for
interested-director transactions. Under section 2-419(b)(1), a
(Continued)
22
contends that it was not because Whitehead allowed Taiga to
obtain intellectual property worth millions of dollars, as well
as broader distribution powers, in exchange for unneeded
assistance for Hawking and a new method of calculating
commissions that provided TTI little remuneration. 14 We find
this argument unpersuasive.
Under section 2-419(b)(2), an agreement is “fair” if the
terms are “within the range that might have been agreed to by
economically motivated disinterested persons negotiating at
arms’ length with knowledge of all material facts known to any
party to the transaction.” Indep. Distribs., Inc. v. Katz, 637
transaction involving a conflict of interest is not void or
voidable if the fact of common directorship or interest is
disclosed or known to the board of directors and the board
ratifies the contract or transaction. See Md. Code Ann., Corps
& Ass’ns §§ 2-419(b)(1) and b(1)(i). Under section 2-419(b)(2),
such a transaction is not void or voidable if, by its terms, it
is fair and reasonable to the corporation. These two safe
harbors are disjunctive, which is probably why the district
court assumed the former provision could not apply and held
exclusively on the latter. See Tobacco Tech., 626 F. Supp. 2d
at 550. We agree with the district court: regardless of any
merit to an argument under section 2-419(b)(1), the transaction
is not void or voidable if it satisfies section 2-419(b)(2). As
we confine our analysis to the latter provision, and find that
the Final Agreement satisfies its terms, we do not consider the
former.
14
TTI also renews its argument that Whitehead bargained
away its trade secrets. Nothing more need be said about this
contention.
23
A.2d 886, 893 (Md. Ct. Spec. App. 1994) (internal quotations and
citation omitted). The agreement is “reasonable,” if “it makes
sense” for the corporation to have entered into it. Id. Based
on the undisputed facts, the Final Agreement is both fair and
reasonable.
First, the terms of the Final Agreement are fair to TTI.
TTI allocated Hawking to Taiga, and in exchange Taiga agreed to
pay TTI for Hawking’s laboratory and promised to take on his
salary obligation gradually. TTI also agreed to a method of
calculating commissions that provided less predictability in
terms of how much income it would receive, but for which the
pool that commissions could be collected from had been expanded
both to include products containing TTI’s flavors -- which Taiga
promised to keep buying -- and Taiga’s flavors, as well as to
draw commissions from the larger pool of European countries
where Taiga would now sell flavors. In light of the
considerations provided by the parties, we cannot say the terms
are outside “the range that might have been agreed to by
economically motivated disinterested persons negotiating at
arms’ length with knowledge of all material facts known to any
party to the transaction.” Id.Second, in light of TTI’s financial circumstances at that
time, it was reasonable for Whitehead to agree to the Final
Agreement. Ms. Cassels-Smith conceded that at the time of the
24
Final Agreement, TTI was “losing business hand over fist.” J.A.
186. Other directors similarly admitted that the firm was in
bad financial shape. These characterizations are confirmed by
the fact that TTI completely lost its profitability from 1999 to
2000, and came within forty-eight hours of declaring bankruptcy
despite borrowing over a million dollars from its own directors,
Massetti and Whitehead. 15 During this period, TTI held complete
financial responsibility for Hawking, which by TTI’s concession
created a “drain on the company.” J.A. 550. In the face of
these difficulties, Whitehead negotiated a deal with Massetti
and Voûte that gave TTI the chance to obtain commissions from a
15
George Cassels-Smith testified to the contrary,
suggesting that TTI’s financial position at the time of the
Final Agreement was “beautiful.” J.A 356. TTI argues that in
light of this statement, a genuine issue of material fact as to
TTI’s financial position exists. George Cassels-Smith’s
testimony, however, is contrary to the record evidence. For
instance, TTI’s corporate board minutes from April 1999 state
that “the cash flow for 1998 and 1999 [was] tight.” J.A. 690.
Moreover, every other TTI director to testify on this issue,
including Ms. Cassels-Smith, acknowledged the company’s
financial problems. In light of these facts, we agree with the
district court that no genuine issue of material fact existed as
to TTI’s financial position during this period. George Cassels-
Smith’s opinion, unsupported by the record, is insufficient to
defeat summary judgment. See Francis v. Booz, Allen & Hamilton,
Inc., 452 F.3d 299, 308 (4th Cir. 2006) (“Mere unsupported
speculation is not sufficient to defeat a summary judgment
motion if the undisputed evidence indicates that the other party
should win as a matter of law.”).
25
broader array of countries and from a larger number of products
sold by Taiga, and that alleviated the strain of paying for
Hawking while still obtaining a benefit from his work. Given
the financial difficulties that TTI faced during this time, it
“ma[de] sense” for Whitehead to have agreed to the Final
Agreement. Katz, 637 A.2d at 893.
Accordingly, because the undisputed facts reflect that the
Final Agreement was both fair and reasonable, we find that the
safe harbor of section 2-419(b) applies to the circumstances in
this case and the Agreement is therefore not void or voidable.
TTI has thus failed to demonstrate that the district court erred
when finding the Final Agreement to be binding.
B.
We now turn to the final issue, whether the district court
erred in finding the balance of TTI’s tort-based claims barred
by the applicable three-year statute of limitations, Md. Code
Ann., Cts & Jud. Proc. § 5-101. TTI concedes that the viability
of its remaining claims turns on whether the statute of
limitations is tolled, but contends that it should have been.
We disagree.
Under Maryland’s “discovery rule,” a statute of limitations
begins to run when the plaintiff “kn[ows] or reasonably should
have known of the wrong.” Poffenberger v. Risser, 431 A.2d 677,
26
680 (Md. 1981). Maryland follows the traditional rule that, as
between a principal and agent, it is presumed that a principal
is charged with the agent’s knowledge. Martin Marietta Corp. v.
Gould, Inc., 70 F.3d 768, 771 (4th Cir. 1995). However, under
the “adverse interest exception” to this rule, a principal may
“avoid imputation when the agent’s interests are sufficiently
adverse” to its own. Id. at 771-72. To make out this
exception, the principal bears the burden of showing that “the
agent [has] totally abandoned the principal’s interest and [is]
acting for his own purposes or those of another. In other
words, the interests of the agent must be completely adverse to
those of his principal.” Id. at 773. This is because if the
agent is acting both for himself and the principal, “the agent
is acting within the scope of the agency relationship, and it is
reasonable to assume that the agent will communicate the
knowledge to his principal.” Id.We have just held that the Final Agreement was a fair and
reasonable transaction for TTI. For the same reasons, we are
constrained to find that TTI cannot meet its burden to show that
the adverse interest exception applies in this case. Even were
we to assume that Whitehead held some interest other than TTI’s
when he bargained for the Final Agreement, nevertheless he
negotiated an agreement that made sense for TTI, particularly at
the time. As a result, TTI cannot show that Whitehead acted
27
with “complete adversity” to its own interests, and so is
“chargeable with [Whitehead’s] knowledge.” Id. at 773. TTI’s
tort claims are therefore time-barred.
IV.
For the foregoing reasons, TTI’s contract claims fail as a
matter of law, and its tort claims are barred by the statute of
limitations. The judgment of the district court is
AFFIRMED.
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