Can corporate officers avoid personal liability for breach of fiduciary duty? Bennett v. Huish Explained

In Bennett v. Huish, the Utah Court of Appeals addressed whether a corporate officer could avoid personal liability for breach of fiduciary duty by claiming protection under the corporate shield doctrine. The case provides important guidance on when corporate officers face personal exposure for their misconduct.

Background and Facts

The Bennett brothers operated a sanitation business and sought a $1.2 million hard money loan to expand into salvage operations. They engaged Huish, a loan broker, who arranged financing through UTCO Associates. When the brothers couldn’t make the balloon payment, Huish negotiated extension fees, retaining portions as undisclosed commissions. Later, Plaintiffs obtained a $70,000 loan through Huish to bring the original loan current. Under an oral agreement, Huish was to hold approximately $28,000 from these proceeds for future extension fees and return any unused portion. When Plaintiffs filed for Chapter 11 protection and requested return of the unused funds, Huish refused.

Key Legal Issues

The court addressed several issues: whether the closing statement was an integrated agreement barring parol evidence, applicability of the statute of frauds, whether Huish breached his fiduciary duty, whether defendants committed conversion, and most importantly, whether Huish could avoid personal liability through the corporate shield doctrine.

Court’s Analysis and Holding

The court found the closing statement was not integrated and properly admitted parol evidence regarding the oral agreement. The court rejected Huish’s corporate shield defense, holding that “an officer or director of a corporation is not personally liable for torts of the corporation…but can only incur personal liability by participating in the wrongful activity.” Since Huish personally breached his fiduciary duty by failing to disclose his commissions and personally converted funds by refusing to return unused proceeds, he faced personal liability despite acting in furtherance of corporate business.

Practice Implications

This decision reinforces that corporate officers cannot hide behind the corporate entity when they personally commit wrongful acts. The corporate shield protects officers from liability for corporate acts, but not from their own misconduct. Practitioners should ensure clients understand that acting “for the corporation” does not immunize personal wrongdoing, particularly breaches of fiduciary duty involving undisclosed conflicts of interest.