NE Harbor Golf Club, Inc. v. Harris

Supreme Judicial Court of Maine · Corporations

CorporationsCorporate opportunityFiduciary dutyStatute of limitationsLachescorporate opportunityduty of loyaltyfull disclosure

Facts

Harris served as president of the Northeast Harbor Golf Club for many years while the Club repeatedly discussed developing its own or nearby land to improve its finances. In 1979, Harris learned in her capacity as Club president of the chance to buy the adjacent Gilpin property and bought it in her own name without first offering it to the Club; in 1985, she separately learned of and bought the surrounding Smallidge property, also without first offering it to the Club. The board was informed of both purchases and took no formal action, and in 1989 agreed it would not take a position on a pending subdivision application involving the property. The Club sued in May 1991, claiming Harris had usurped a corporate opportunity, and later also argued that her decision to develop the land in 1988 independently breached fiduciary duties.

Issue

Whether Harris's purchase of the Gilpin and Smallidge properties constituted usurpation of a corporate opportunity, whether the Club's claims were barred by the six-year statute of limitations or by laches, and whether Harris's 1988 development plans created an independent fiduciary-duty violation apart from the corporate-opportunity claim.

Rule

A director or officer may not take a corporate opportunity without first making full disclosure to the corporation and allowing the corporation to decide whether to pursue it. Under the ALI approach, an opportunity is corporate if the officer or director learns of it through corporate office or knows it is closely related to a business in which the corporation is engaged or expects to engage; doubts about relatedness should be resolved in favor of disclosure. A claim for usurpation accrues when the fiduciary takes the opportunity without first offering it to the corporation, not when later development occurs, and absent fraud the discovery rule does not delay accrual. Even if a claim falls within the limitations period, laches bars it where the plaintiff unreasonably delays and the defendant is prejudiced.

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

Olivia Chen is president of Lakeside Rowing Club, a nonprofit corporation in Madison, Wisconsin. A marina owner contacts Olivia because of her role at the club and offers to sell a strip of waterfront land adjacent to the club's dock; Olivia buys it personally the next week without first telling the board, then informs the board afterward that she will "look out for the club's interests."

If the club sues Olivia for usurping a corporate opportunity, which is the strongest argument for the club on the merits?

Explanation. Under the majority's ALI-based rule, an opportunity is corporate when a director or officer becomes aware of it in connection with corporate functions. The central requirement is full disclosure before taking it, so the corporation—not the fiduciary—decides whether to pursue it. The corporation need not prove prior approval of that exact parcel or present financial ability, and post-purchase assurances do not cure the failure to disclose first. (Derived from NE Harbor Golf Club, Inc. v. Harris (n.d.).)