Kaplan v. Fenton

Supreme Court of Delaware · 1971 · Corporations

278 A.2d 834 (1971)

Updated August 22, 2026

Corporationscorporate opportunitydirectors' fiduciary dutiesderivative actionsfiduciary dutydirectorderivative suitinterest or expectancy

Facts

Christiana owned all of Huntington Harbor Corporation's Class A stock and had advanced Huntington over $5 million, while Huntington's Class B stockholders contributed no funds but benefited from Christiana's virtually interest-free financing of Huntington's land development. Christiana's board concluded that the practical solution was to acquire the minority Class B stock, but on January 28, 1963 it unanimously rejected an offer to sell 2,200 Class B shares plus 39,000 Christiana shares for cash because the board wanted all or none of the Class B shares, could not practicably buy its own stock for cash, and preferred any acquisition to be in kind using Christiana stock. About a month later, Fenton, a Christiana director, received a similar offer through Banowit, another Christiana director and Huntington Class B stockholder, but for 2,240 Class B shares at $150 per share in cash; Fenton informed Christiana's president and chief executive officer and asked whether to present it to the board, and was told no. Fenton's group and Banowit purchased the shares, and in April 1964 Christiana acquired all 10,000 Huntington Class B shares, including those shares, in exchange for 364,000 shares of Christiana.

Issue

Whether Fenton and Banowit, as directors of Christiana, usurped a corporate opportunity by purchasing Huntington Class B stock for themselves and later selling it to Christiana at a profit. More specifically, the question was whether the offer made to Fenton was a business opportunity that belonged to Christiana under Delaware's corporate opportunity doctrine.

Rule

When a business opportunity comes to a corporate officer or director in his individual capacity rather than in his official capacity, and the opportunity is not essential to the corporation, is one in which the corporation has no interest or expectancy, and the officer or director has not wrongfully embarked the corporation's resources therein, the officer or director may treat the opportunity as his own.

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

Lakeview Minerals, a Delaware corporation based in Denver, owns all voting units of a land-development affiliate in Arizona and has long discussed buying out the affiliate's nonvoting investors. In March, Lakeview's board unanimously rejects an offer to buy 15% of those nonvoting units for cash because the board wants all remaining units, not a partial block, and the company is preserving cash for other obligations. A month later, director Marcus Hale is privately offered a nearly identical 15% block for cash and, after asking Lakeview's chief executive whether to bring it to the board and being told no, buys it himself.

If shareholders later sue derivatively after Lakeview eventually buys Marcus's units at a profit, which is the strongest argument that Marcus did not usurp a corporate opportunity?

Explanation. The governing rule permits a director to take an opportunity that comes in his individual capacity when it is not essential to the corporation, the corporation has no interest or expectancy in it, and no corporate resources are wrongfully used. The strongest fact is the board's earlier rejection of a substantially similar partial cash offer, which indicates the corporation had expressly disclaimed interest in that specific opportunity.