Farber v. Servan Land Company, Inc.

United States District Court · Corporations

Corporationsfiduciary dutycorporate opportunitymajority shareholdersdirectorsfiduciary dutycorporate opportunityself-dealing

Facts

Servan Land Company owned approximately 180 acres containing the Rolling Hills Country Club. Defendants Seriani and Savin, who controlled the corporation, personally purchased an adjoining 160-acre tract from Farquhar after earlier corporate discussions about possible acquisition of adjacent land, but the corporation had previously taken no action to pursue that purchase and instead used funds to pay off notes and redeem preferred stock. In 1973 the corporate property and the adjoining 160 acres were sold together, and Seriani and Savin allocated $5 million of the aggregate price to the corporation's parcel and the remainder to their personally owned parcel without obtaining an appraisal at the time. A later court-appointed appraisal showed the corporate parcel had actually been valued lower than $5 million, meaning the allocation had favored the corporation and thus benefited Farber as a shareholder.

Issue

Whether Seriani and Savin, as directors and majority stockholders, breached their fiduciary duties by purchasing the adjoining 160 acres for themselves rather than first offering it to the corporation, and whether they had to account to the corporation or minority shareholders for profits from that purchase. The court also considered whether the allocation of the 1973 sale proceeds was improper.

Rule

Directors and dominant stockholders stand in a fiduciary relationship to the corporation and minority stockholders and bear the burden of proving fairness and good faith in dealings affecting the corporation. But adjacent property is not a corporate opportunity merely because it borders corporate land; the doctrine does not require an accounting where the property has no substantial relation to the corporation's primary purpose, its acquisition is not antagonistic to any significant corporate purpose, and the fiduciaries' acquisition benefited rather than harmed the corporation.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Heron Fairways, Inc. operates a private golf course on 150 acres outside Tampa, Florida. Its controlling directors, Nolan Pierce and Ravi Mehta, personally buy the 90-acre parcel next door after no board vote is taken on acquiring it, and three years later both parcels are sold together in one package, increasing buyer interest in the golf course property.

A minority shareholder sues, arguing the neighboring parcel was automatically a corporate opportunity because it bordered the corporation's land. What is the strongest response under the governing rule?

Explanation. The majority opinion held that adjacent property is not a corporate opportunity merely because it borders corporate land. Liability was denied where the land had no substantial relation to the corporation's primary purpose, the directors' purchase was not antagonistic to any significant corporate purpose, and the transaction benefited rather than harmed the corporation. (Derived from Farber v. Servan Land Company, Inc. (n.d.).)