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Breach of Duty

In: Business and Management

Submitted By Jayice1
Words 516
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Breach of Duty
Orm Jenkins Jr Grantham University

In 1993, Dweck and Nasser (Chairman and controlling shareholder of Kids) and others purchased the assets of EJ Gitano. As part of the transaction, Kids was formed and designated for tax purposes as a Subchapter S Corporation so Kids' profits would be attributed pro rata to Kids stockholders (originally only Nasser). In 1994, Taxin joined Kids as Vice President of Sales and Merchandising, and Kids' sales subsequently increased by a factor of five over a four-year period. Around 1998, Dweck was issued 45% of Kids' outstanding equity. However, Dweck believed she was not being adequately compensated and so in October 2001, she formed Success Apparel LLC ("Success"), to operate as a wholesaler of children's clothing.
From 2001 until 2005, Success operated out of Kids' premises using Kids' employees. Success drew on Kids' letters of credit, sold products under Kids' vendor agreements, used Kids' vendor numbers, and capitalized on Kids' relationships. Then in June 2004, Dweck founded Premium Apparel Brands LLC ("Premium"), a clothing wholesaler, which also operated out of Kids' premises, and used Kids' employees and resources. Dweck owned 100% of Premium and served as its CEO. Between 2002 and 2005, Dweck charged almost $500K in expenses to Kids and at least $172K were personal expenses, including vacations and assorted luxury goods. In March 2005, Dweck admitted at a stockholder meeting that she was selling "overlapping product" and competing with Kids from Kids' premises. However, Dweck continued to work out of Kids' offices until April 11, 2005, and Dweck and Taxin continued to divert Kids' business to Success. Dweck and Taxin also arranged for a mass exodus of Kids' employees to join Success.
Eventually there was a falling…...

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