Limited Officer Liability in Nevada - NRS §78.138

In Clayton v. AGT, Inc. (2013 WL 6199191), the court dismissed counterclaims against an ex-officer of the defendant corporation, finding no liability under Nevada’s business judgment rule (NRS §78.138). When the plaintiff was hired as an officer for AGT, his employment agreement contained an exclusivity provision. In apparent violation of that provision, the plaintiff simultaneously obtained another job. AGT claimed the outside job resulted in the plaintiff’s failure to act and subsequent damages to AGT. AGT counterclaimed for breach of contract, duty of loyalty, negligence, and negligent interference with economic relations.

The court held that the plaintiff could only be liable under NRS §78.138 for a failure to act if the failure constituted a breach of fiduciary duty and involved intentional misconduct, fraud, or a known violation of law. Breach of contract was dismissed on the grounds that the plaintiff’s failure to act, as a result of secondary employment alone, did not constitute intentional misconduct, fraud, or a known violation of law. The court dismissed breach of loyalty similarly, holding that secondary employment alone did not divert business opportunities, constitute competition with AGT, or divulge confidential information. Dismissing the negligence claim, the court stated that §78.138 barred any damages for negligent failure to act. Finally, the court dismissed the last claim, finding that Nevada does not recognize negligent interference with economic relations.