Northeast Harbor Golf Club v. Harris

Supreme Judicial Court of Maine · Corporations

CorporationsCorporate opportunityFiduciary dutiesStatute of limitationsLachescorporate opportunityduty of loyaltyfull disclosure

Facts

Harris, the Club's president from 1971 to 1990, purchased the adjoining Gilpin property in 1979 after learning of it in her capacity as Club president, and she did not offer it to the Club before buying it for herself. In 1985, after learning independently that the Smallidge property was available, she bought that surrounding parcel as well, later informing the board that she wanted it to remain in 'friendly hands.' The Club had repeatedly discussed developing its own land and at times adjacent land to improve its finances, but it took no action against Harris's purchases. In 1988 Harris's son sought subdivision approval for part of the Gilpin property, and the Club did not sue until May 1991.

Issue

Did Harris usurp corporate opportunities by purchasing the Gilpin and Smallidge properties, and if so, were the Club's claims barred by the six-year statute of limitations or by laches? Separately, did Harris's later decision to develop the properties create an independent breach of fiduciary duty because development was contrary to the Club's interests?

Rule

Under the ALI approach, a director or officer may not take a corporate opportunity without first making full disclosure and offering it to the corporation. An opportunity is a corporate opportunity if the fiduciary learns of it in connection with corporate functions, or, even if learned independently, if the fiduciary 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 the corporation. A cause of action for usurpation accrues when the fiduciary takes the opportunity without first offering it to the corporation, not when the corporation later discovers the harm or when development begins.

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

Olivia Mercer is president of Cascade Bluffs Ski Association, a corporation operating ski trails outside Burlington, Vermont. A local broker contacts Olivia because of her position and tells her that a parcel containing the association’s main access road is available; Olivia buys it personally without first informing the board.

If the corporation sues Olivia, which is the strongest argument that she took a corporate opportunity?

Explanation. Under the majority’s ALI-based rule, an opportunity is corporate if a director or officer becomes aware of it in connection with corporate functions. The central requirement is full disclosure before taking the opportunity. The fiduciary cannot decide for herself that the corporation would be protected, lacks funds, or is not in that exact line of business.