Two owners of a Virginia restaurant breached their fiduciary duty to the corporation they managed by paying themselves exorbitant management fees and by making improper loans and distributions to themselves, a Fairfax County judge has found.
“Fiduciary duty” in this context generally refers to the duty of loyalty owed by officers, directors, and other employees to each other or to the corporation they work for. Fiduciary duties include things like acting at all times with the corporation’s best interests in mind, refraining from usurping business opportunities for yourself, and refraining from actively competing with the company. In general, the law in Virginia and elsewhere holds that people in a position of trust vis-à-vis a closely held corporation must perform their duties without self-dealing or conflict of interest.
According to the opinion, the basic facts were as follows. As of 1993, Michael Magill, Thomas Dinsmore, and Raymond Clatworthy each owned 33 percent of the shares of DPR, Inc., a Virginia corporation that operated a restaurant. The restaurant’s primary business was preparing buffet lunches for sightseeing school groups visiting the Washington, D.C., area. Magill, who lived in the D.C. area, set up Magill Enterprises, Ltd., which operated the restaurant as an independent contractor of DPR and charged it a management fee. The other two owners did not live in the D.C. area. DPR was organized as an S corporation.