Brief Fact Summary. The Northeast Harbor Golf Club, Inc., (Appellant), brought suit against Nancy Harris, (Appellee), for breach of fiduciary duty as its president by purchasing and developing property adjacent to that owned by Appellant. Appellant appeals from the Superior Court judgment in favor of Appellee.
Synopsis of Rule of Law. A corporate opportunity is one that is closely related to a business in which the corporation is engaged or one that accrues to the fiduciary as a result of her position within the corporation. The fiduciary must make a full disclosure prior to taking advantage of any corporate opportunity. The corporation must then formally reject the opportunity. A good faith but defective disclosure may be ratified after the fact only by an affirmative vote of the disinterested directors or shareholders.
if there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is, from its nature, in the line of the corporation's business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and, by embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity for himself.View Full Point of Law
Issue. Whether the trial court correctly applied the line of business test in determining that Appellee did not usurp a corporate opportunity.
Held. No. The correct standard by which to judge a corporate opportunity is the ALI test.
Discussion. The line of business test has two flaws. First, whether an opportunity is within a corporation’s line of business is difficult to answer. Second, the evaluation of financial incapacity will often unduly favor the inside director or executive who has command of the facts relating to the finances of the corporation. The fairness test is also unhelpful because it lacks a principled content. The combination of the two tests has resulted in compounding the flaws in both. The ALI test may bring clarity to a murky area of the law because it provides a clear procedure whereby a corporate officer may insulate herself through prompt and complete disclosure form the possibility of a legal challenge. The case is remanded for proceedings consistent with this opinion.