After employment claims ran their course, a stockholder tried a new angle: dressing up workplace harassment as a fiduciary-duty lawsuit. The court wasn’t persuaded.
TL;DR: A court dismissed with prejudice a stockholder derivative lawsuit that tried to reframe a director’s and former officer’s workplace harassment as a breach of the duty of loyalty. The court held that the alleged misconduct was interpersonal and governed by employment and tort law, not corporate internal affairs. Fiduciary duty is exacting, but narrow, and it is not a catch-all remedy for workplace misconduct simply because the alleged wrongdoer held a title.
A second lawsuit after the employment cases ended
The company was closely held, with two stockholders who also served as its only directors. One of them was a former officer.
According to the complaint, the former officer sexually harassed employees and exposed them to racist conduct. The allegations included offensive communications, inappropriate requests, exclusion from communications and a meeting, and threats of termination. Both employees resigned.
The employees filed EEOC charges, followed by lawsuits in New York state court. Those cases resulted in judgments totaling more than $1.8 million, including roughly $1.35 million entered jointly against the company and the former officer, plus additional judgments of more than $235,000 against each of them individually.
After those judgments were entered, the remaining stockholder filed a derivative action seeking to shift those losses to the former officer under a fiduciary-duty theory.
The theory the court rejected
The plaintiff’s argument was simple: harassment is selfish; selfish conduct is disloyal; therefore harassment is a per se breach of the duty of loyalty.
The court declined to expand fiduciary-duty doctrine into a general workplace misconduct regime.
Why this was not a fiduciary-duty case
The decision turned on a boundary employers and boards should understand.
Fiduciary law governs corporate internal affairs, including management of business assets, oversight of enterprise-level risks, and the use of corporate authority. Employment disputes are governed by the law of the place where the injury occurred and by comprehensive statutory schemes.
On the allegations pled, the complaint did not describe fiduciary conduct taken in the defendant’s capacity as a director or officer exercising specific delegated authority. None of the claims involved board-level decisions or misuse of corporate powers.
Instead, the alleged misconduct relied on general supervisory authority. As the court explained, any midlevel manager could have committed the same acts using the same means. However reprehensible, the conduct was personal misconduct, not a misuse of corporate office.
Allowing the claim to proceed would have erased the line between interpersonal workplace harm and corporate governance, turning fiduciary duty into a backstop for employment claims. The court refused to do that.
Why the court was wary of letting the case proceed anyway
The opinion also explained why repackaging harassment claims as derivative fiduciary suits creates problems.
Employment laws reflect legislative tradeoffs, including exhaustion requirements, limitations periods, damages caps in many regimes, and confidentiality and conciliation structures. Allowing derivative plaintiffs to sue over the same conduct risks an end-run around those frameworks.
The court also flagged a practical concern employers will recognize immediately. Harassment claims are fact-intensive and victim-centered. Turning them into public derivative litigation risks commodifying personal trauma and pulling victims into a forum not designed for that purpose.
What employers should take from the decision
First, serious workplace misconduct does not automatically become a governance claim. Even costly violations can remain squarely in employment-law territory.
Second, titles alone do not convert misconduct into fiduciary conduct. Capacity and delegated authority matter.
Third, how a company responds still counts. Termination, investigation, and appropriate remedial action remain critical to managing risk and limiting follow-on litigation.
Finally, do not overread the ruling. The court carefully distinguished cases involving enterprise-level responsibility, oversight failures, or misuse of specific corporate authority. Different allegations can lead to a different outcome.
Bottom line
Fiduciary duty is not a universal cleanup tool for workplace misconduct. When the harm is interpersonal and employment law already supplies the remedy, courts are not inclined to transform workplace disputes into corporate governance litigation simply because the wrongdoer held a title.