978-1285770178 Case Printout Case CPC-05-07

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subject Authors Roger LeRoy Miller

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Del.Ch.,2012.
Dweck v. Nasser
and Premium between January 1 and May 18, 2005 (the “Stub Period”); (ii) profits generated by Success and Premium after
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May 18, 2005, from all license agreements in effect as of that date (the “Branded Business”); and (iii) profits generated by
2130607, at *11 (Del. Ch. Aug. 26, 2005). “It is elementary that in this accounting phase, [the party submitting the account-
ing] bears the burden of proving both the accuracy of its accounting and the propriety of the underlying transactions.” Dolby
v. Key Box “5” Operatives, Inc., 1996 WL 741883, at *1 (Del. Ch. Dec. 17, 1996) (Allen, C).
A. The Dweck Group's Accounting
1. The Fall 2005 Season
The Dweck Group's net profit figure omitted profits that the NonBranded Business generated during the Fall 2005 sea-
son. The Dweck Group left out these amounts because the PostTrial Order mentioned specifically the Holiday 2005 season
and the Spring 2006 season, but not the intervening Fall 2005 season. This literalist reading ignored the purpose of the lost
profits award and created a remedial doughnut hole between the Stub Period and the Holiday 2005 season.
Branded Business by awarding Kids lost profits for the Stub Period through Spring 2006. Although not called out explicitly
in the PostTrial Order, the Fall 2005 season falls within this time period.
It would be nonsensical to exclude Fall 2005 from the damages award. The bulk of the orders that generated profits for
the Fall 2005 season were diverted during the Stub Period and explicitly covered by the PostTrial Opinion and Order. Prof-
its for the Fall 2005 season also were covered by the logic and spirit of the PostTrial Opinion and Order. To the extent
The Dweck Group's net profit figure omitted profits generated by the Target Direct business. The PostTrial Opinion
held that Target Direct was a Kids corporate opportunity that Dweck misappropriated. See PostTrial Op. at *13. According-
ly, profits generated by Success and Premium on the 2005 Target Direct business are awarded to Kids. The Dweck Group's
accounting attributed $63,318 in 2005 profits to Target Direct. I accept that figure and hold the Dweck Group liable for this
additional amount.
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© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.
operating expenses like “Warehousing & distribution” and “Design & production” when determining lost profits. The Dweck
Group properly subtracted these costs and other categories of operating expenses.
Second, Nasser argued that the lost profits award only should account for those opportunities that turned a profit without
any offsetting losses. There are circumstances when a Court could impose on a faithless fiduciary the downside risk from a
loyalty breach. See Paradee v. Paradee, 2010 WL 3959604, at *13 (Del. Ch. Oct. 5, 2010). This case does not call for such a
remedy. After Dweck and her colleagues misappropriated Kids' core business, they believed they owned it lock, stock, and
barrel. They had every reason to attempt to maximize profits across all brands and business lines. To the extent they failed
with some brands, it was not due to conscious neglect or malice for Nasser and Kids, but rather because of the ever-present
reality that some ventures fail. The PostTrial Opinion netted Premium's losses against Success's profits when calculating
damages. See PostTrial Op. at *17; see also JX 179, Exs. C, J. Netting profits and losses for the accounting treats the issue
not decide, and the accounting did not address any contract claims, whether express or implied, that Kids might have against
Success and Premium as a result of inter-company transfers.
Finally, Nasser sought to expand the accounting to include a men's line produced under the John Deere brand and non-
branded business produced overseas for WalMart and conducted through Panther Trading International Limited. Nasser did
not develop these issues sufficiently at trial, and the PostTrial Opinion did not award any relief in these areas. Unlike the
ing shows the NonBranded Business generated a loss of $152,998. Even with an additional $97,227 in Fall 2005 profits, the
NonBranded Business still generated a net loss. Unlike the remainder of the Dweck Group, Fine was not ordered to account
for the Stub Period or the Branded Business. Id. at ¶¶ 12. The additional amounts assessed against the Dweck Group arise
from categories for which Fine was not ordered to account, and Fine is therefore not liable for any additional damages.
expended during the 2006–08 period.” Defs.' Reply 9. Nasser claimed that the numbers were drawn from Kids' general ledger
and trial balances, but his submission did not tie the categories to actual ledger accounts, expense entries, or trial balances.
Joseph Niyazov prepared Nasser's accounting. Niyazov served as Kids' controller after Bruce Fine, Kids' longstanding
Chief Financial Officer and controller, left with Dweck, and after Kids went through several replacement controllers. Ni-
yazov resigned in March 2011. Kids re-hired him to prepare the accounting at $30 an hour and paid him approximately
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May 18, 2005, from all license agreements in effect as of that date (the “Branded Business”); and (iii) profits generated by
2130607, at *11 (Del. Ch. Aug. 26, 2005). “It is elementary that in this accounting phase, [the party submitting the account-
ing] bears the burden of proving both the accuracy of its accounting and the propriety of the underlying transactions.” Dolby
v. Key Box “5” Operatives, Inc., 1996 WL 741883, at *1 (Del. Ch. Dec. 17, 1996) (Allen, C).
A. The Dweck Group's Accounting
1. The Fall 2005 Season
The Dweck Group's net profit figure omitted profits that the NonBranded Business generated during the Fall 2005 sea-
son. The Dweck Group left out these amounts because the PostTrial Order mentioned specifically the Holiday 2005 season
and the Spring 2006 season, but not the intervening Fall 2005 season. This literalist reading ignored the purpose of the lost
profits award and created a remedial doughnut hole between the Stub Period and the Holiday 2005 season.
Branded Business by awarding Kids lost profits for the Stub Period through Spring 2006. Although not called out explicitly
in the PostTrial Order, the Fall 2005 season falls within this time period.
It would be nonsensical to exclude Fall 2005 from the damages award. The bulk of the orders that generated profits for
the Fall 2005 season were diverted during the Stub Period and explicitly covered by the PostTrial Opinion and Order. Prof-
its for the Fall 2005 season also were covered by the logic and spirit of the PostTrial Opinion and Order. To the extent
The Dweck Group's net profit figure omitted profits generated by the Target Direct business. The PostTrial Opinion
held that Target Direct was a Kids corporate opportunity that Dweck misappropriated. See PostTrial Op. at *13. According-
ly, profits generated by Success and Premium on the 2005 Target Direct business are awarded to Kids. The Dweck Group's
accounting attributed $63,318 in 2005 profits to Target Direct. I accept that figure and hold the Dweck Group liable for this
additional amount.
© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.
operating expenses like “Warehousing & distribution” and “Design & production” when determining lost profits. The Dweck
Group properly subtracted these costs and other categories of operating expenses.
Second, Nasser argued that the lost profits award only should account for those opportunities that turned a profit without
any offsetting losses. There are circumstances when a Court could impose on a faithless fiduciary the downside risk from a
loyalty breach. See Paradee v. Paradee, 2010 WL 3959604, at *13 (Del. Ch. Oct. 5, 2010). This case does not call for such a
remedy. After Dweck and her colleagues misappropriated Kids' core business, they believed they owned it lock, stock, and
barrel. They had every reason to attempt to maximize profits across all brands and business lines. To the extent they failed
with some brands, it was not due to conscious neglect or malice for Nasser and Kids, but rather because of the ever-present
reality that some ventures fail. The PostTrial Opinion netted Premium's losses against Success's profits when calculating
damages. See PostTrial Op. at *17; see also JX 179, Exs. C, J. Netting profits and losses for the accounting treats the issue
not decide, and the accounting did not address any contract claims, whether express or implied, that Kids might have against
Success and Premium as a result of inter-company transfers.
Finally, Nasser sought to expand the accounting to include a men's line produced under the John Deere brand and non-
branded business produced overseas for WalMart and conducted through Panther Trading International Limited. Nasser did
not develop these issues sufficiently at trial, and the PostTrial Opinion did not award any relief in these areas. Unlike the
ing shows the NonBranded Business generated a loss of $152,998. Even with an additional $97,227 in Fall 2005 profits, the
NonBranded Business still generated a net loss. Unlike the remainder of the Dweck Group, Fine was not ordered to account
for the Stub Period or the Branded Business. Id. at ¶¶ 12. The additional amounts assessed against the Dweck Group arise
from categories for which Fine was not ordered to account, and Fine is therefore not liable for any additional damages.
expended during the 2006–08 period.” Defs.' Reply 9. Nasser claimed that the numbers were drawn from Kids' general ledger
and trial balances, but his submission did not tie the categories to actual ledger accounts, expense entries, or trial balances.
Joseph Niyazov prepared Nasser's accounting. Niyazov served as Kids' controller after Bruce Fine, Kids' longstanding
Chief Financial Officer and controller, left with Dweck, and after Kids went through several replacement controllers. Ni-
yazov resigned in March 2011. Kids re-hired him to prepare the accounting at $30 an hour and paid him approximately

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