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Feb 21

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Liability Extended to Employees for Underreported License Fees

A recent case in the Canadian courts took the unusual step of extending liability to the employees working for the entity who underreported licensing royalties.  Plaintiff XY and Defendant JingJing entered into a licensing agreement for use of technology.  The Court found that JingJing breached the terms of the contract and falsified its records in order to underpay royalties it owed to XY.  The controlling shareholder of JingJing, and two employees were found jointly and severally liable for damages exceeding $8 million.  Because JingJing had declared bankruptcy by the time of trial, the individuals were left as the sole source of recovery.

In dismissing the appeal, the Court found that

“Even if causation for purposes of the tort of deceit had not been proven, the tort of civil conspiracy among JingJing and the three personal defendants had been proven.  The trial judge had not erred in extending liability to the three personal defendants, who were not shielded by the corporate vehicle from liability for their active participation in deceiving XY.”

Results such as these serve as a reminder for employees that “following orders” is not a defense.  In this case, the Court found that the employees were actively involved in the deception and therefore acting outside of what can reasonably be assumed to be part of their duties.

About the author

Renee Howdeshell

Renee Howdeshell is a founding member of Fulcrum Inquiry, an accounting, finance and economic consulting firm that performs damage analyses for commercial litigation, forensic accountings, royalty & distribution audits, financial investigations, and business valuations. Ms. Howdeshell holds a degree in Finance and Marketing from the University of Virginia's McIntire School of Commerce and is a Certified Public Accountant (CPA) and a Certified Fraud Examiner (CFE). She has testified as an expert witness in federal court, CA state court and arbitration regarding the results of her work. She can be reached at (213) 787-4112 and her resume is available at www.fulcrum.com.

Permanent link to this article: http://betweenthenumbers.net/2014/02/liability-extended-to-employees-for-underreported-license-fees/

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