Maryland Metals, Inc. v. Metzner

Court of Appeals of Maryland · 1978 · Corporations

382 A.2d 564 (1978)

Updated August 22, 2026

CorporationsFiduciary dutyEmployee competitionduty of loyaltycorporate officersmanagerial employeespreparation to competeactive competition

Facts

Metzner and Sellers were senior officers of Maryland Metals who, while still employed, urged the company to acquire a shredder and expand into shredding operations. After being denied an ownership interest, they informed the company president that if Maryland Metals would not participate in a proposed shredding venture, they would go into business themselves, and they then formed a corporation, pursued financing, secured a land option, contracted to buy a shredder, and consulted with utilities, contractors, and agencies. They did not disclose the details of these preparations and there was evidence they concealed them, but they continued to work diligently for Maryland Metals until their employment ended. The chancellor found they did not solicit customers or employees, did not misuse trade secrets or confidential information, and did not usurp a corporate opportunity.

Issue

May corporate officers and high-level managerial employees, before leaving employment, secretly make detailed preparations to compete with their employer without breaching fiduciary duties of loyalty? More specifically, does failure to disclose the details of those preparations itself constitute a breach absent additional unfair, fraudulent, or wrongful conduct harmful to the employer?

Rule

Corporate officers and high-level employees owe undivided loyalty and may not actively compete with their employer during employment, including soliciting customers or employees, misusing trade secrets or confidential information, or otherwise acting inimically to the employer's interests. But they are privileged, before termination, to make arrangements and preparations to compete after leaving, and mere failure to disclose the details of those preparations is not a breach unless accompanied by unfair, fraudulent, or wrongful conduct, or some particular circumstance making the nondisclosure harmful to the corporation.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nina Patel, chief operating officer of a specialty recycling firm in Cleveland, secretly forms a new corporation in Delaware, secures tentative financing from a local bank, and signs a lease for a future processing site in Akron. Until she resigns two months later, she continues working full time, does not contact her employer’s customers or employees, and uses no confidential company materials.

If the employer sues Nina for breach of fiduciary duty based solely on these pre-resignation activities and her failure to disclose their details, who is likely to prevail?

Explanation. The majority held that officers and high-level employees may make arrangements and preparations to compete before leaving employment. Forming an entity, arranging financing, and securing premises are preparatory acts, not active competition, unless accompanied by unfair, fraudulent, or wrongful conduct such as solicitation, misuse of confidential information, or other harmful circumstances. Mere nondisclosure of the details is not enough.