Katz Corporation v. T.H. Canty & Company

Supreme Court of Connecticut · 1975 · Corporations

362 A.2d 975 (Conn. 1975)

Updated August 22, 2026

Corporationsderivative actioncorporate opportunityfiduciary dutydirectorsofficerstreasury stockinside information

Facts

T. H. Canty and Company, Inc. was a Connecticut corporation whose principal business was real estate and insurance, although over many years it sometimes bought its own stock. After Katz Corporation made conditional tender offers for control of the company, the company's stockholders were informed at a November 1, 1971 meeting that internal valuations placed the stock at $380 per share and later $360 per share before liquidation expenses, while Katz's offer was $300 per share. Fearing a takeover, the individual defendants borrowed money personally and bought 1849 shares from shareholders at $310 and then $325 per share, also informing selling shareholders that liquidation dividends might exceed that price. The corporation lacked sufficient cash or liquid assets to purchase those shares itself, and the corporation was later voted into liquidation.

Issue

Did the officer-directors breach fiduciary duties to the corporation by purchasing outstanding shares for themselves rather than for the corporation, thereby usurping a corporate opportunity, and by allegedly using inside information in those purchases? Relatedly, did the defendants bear the burden of proving fairness and good faith absent a transaction between themselves and the corporation?

Rule

When the challenged conduct is not a contract or transaction between directors and the corporation, the plaintiff bears the initial burden of proving the existence of a corporate opportunity. A corporate opportunity exists when a business opportunity is one the corporation is financially able to undertake, is in the line of its business and of practical advantage to it, is one in which the corporation has an interest or reasonable expectancy, and taking it would place the fiduciary's self-interest in conflict with the corporation's. Ordinarily, a corporation has no interest in its outstanding stock, and absent some reason or necessity for the corporation to buy that stock, an officer or director does not usurp a corporate opportunity by purchasing it personally. There can be no expectancy in a transaction unless the corporation is financially able to undertake it.

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Lakefront Parcel Holdings, Inc., a Wisconsin corporation based in Milwaukee, is sued derivatively after two officer-directors personally bought shares from several stockholders during a control contest. The corporation itself was not a party to those stock sale agreements.

In the derivative action, who bears the initial burden on the corporate-opportunity claim?

Explanation. When the alleged breach is usurpation of a corporate opportunity rather than a contract or transaction between directors and the corporation, the initial burden is on the plaintiff to prove that a corporate opportunity existed. The burden does not automatically shift to directors to prove fairness merely because fiduciary duties are alleged.