Northeast Harbor Golf Club, Inc. v. Harris

Supreme Judicial Court of Maine · 1995 · Corporations

CorporationsCorporate opportunityFiduciary dutyDuty of loyaltycorporate opportunityduty of loyaltyfiduciary dutydirector disclosure

Facts

While serving as president of the Club, Harris purchased two parcels closely connected to the golf course: the Gilpin property, which lay among the fairways and included land burdened by rights used by the Club, and the Smallidge parcel, which was surrounded on three sides by the course. She did not disclose her plan to buy the Gilpin property before purchasing it, and she later disclosed the Smallidge acquisition to the board after entering into the transaction; the board took no formal action in response to either purchase. Years later, Harris and her children subdivided and pursued development of the properties, including a five-lot subdivision on the Gilpin land, and the Club sued claiming she had usurped a corporate opportunity. The trial court found no breach because the land was not in the Club's line of business, the Club lacked financial ability to buy it, and Harris had acted in good faith.

Issue

What standard should Maine use to determine whether a director or officer has improperly taken a corporate opportunity? Under that standard, can Harris avoid liability where the trial court evaluated her conduct under the line-of-business approach and emphasized financial inability and good faith?

Rule

Maine adopts the American Law Institute approach to corporate opportunities. A director or senior executive may not take a corporate opportunity unless she first offers it to the corporation with full disclosure of the conflict and the opportunity, the corporation rejects it, and the rejection is either fair to the corporation, approved in advance by disinterested directors under business-judgment standards, or approved or ratified by disinterested shareholders without amounting to waste. A corporate opportunity includes opportunities the fiduciary learns of in connection with corporate functions, under circumstances suggesting the offeror expects it to be offered to the corporation, through use of corporate information or property where it would reasonably interest the corporation, and, for senior executives, opportunities closely related to a business in which the corporation is engaged or expects to engage.

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

Elena Park is president of Lakeview Marina Association, a Maine nonprofit corporation that operates a marina in Portland. A neighboring storage yard owner approaches Elena because of her role at the association and offers to sell waterfront land that could buffer the marina from condo development; Elena buys it personally that week without informing the board, then says the association was cash-strapped and she meant no harm.

If the association sues for usurpation of a corporate opportunity, which is the strongest analysis under Maine law as adopted by the majority?

Explanation. Maine adopted the ALI disclosure-first approach, not the line-of-business or financial-ability tests. If the opportunity was learned in connection with Elena's corporate role or under circumstances suggesting it should be offered to the corporation, she had to first make full disclosure and offer it to the corporation. If she failed to offer it at all, she cannot defend merely by claiming fairness, good faith, or the corporation's lack of money.