Gerow v. Covill

Bruce Covill (defendant) and Ann Gerow (plaintiff) married in 1974. During the marriage, Bruce built an independent consulting business focused on electronic media. In May 1994, Gerow filed for divorce. In August, Bruce started a new business, Cyber Publishing, Inc. (Cyber), with his brother, Jeff, and sister-in-law, Ann Covill. Cyber was incorporated by Ann Covill, and she was listed as the sole shareholder. Bruce was Cyber’s president, and Cyber was established using the goodwill and client list from Bruce’s independent consulting business. Two of Bruce’s former independent clients became Cyber’s major clients, allowing Cyber to achieve quick success. Bruce received a substantial salary from Cyber but did not receive any specific compensation for the intangible assets he brought to Cyber from his independent consulting business. During the divorce trial, Gerow argued that Cyber should be classified and divided as a community asset because, although it was incorporated and held by Ann Covill, Cyber was effectively the incorporation of Bruce’s independent consulting business, which was a community asset. In other words, Gerow argued that Cyber was a community asset because Bruce transferred intangible community assets to Cyber in bad faith and without compensating the community. The trial court agreed, awarded Gerow a one-half ownership interest in Cyber, and held that Bruce had breached his fiduciary duty to Gerow by incorporating his independent consulting business and associated intangible community assets under Ann Covill’s name. Bruce appealed, arguing that there was no evidence he had transferred community property to Cyber, and that his fiduciary duty to Gerow ended upon the filing of the divorce petition.