Yiannatsis v. Stephanis

Supreme Court of Delaware · 1995 · Corporations

653 A.2d 275 (Del. 1995)

Updated August 22, 2026

Corporationsclosely held corporationcorporate opportunityright of first refusalfiduciary dutiesduty of loyaltyusurpationratification

Facts

Sunview was a family-owned closely held corporation whose stockholders included Demos, John, and Costas. A 1975 stock restriction agreement required that if a stockholder or a deceased stockholder's estate wished to sell shares, written notice had to be given to Sunview, which then had a right of first refusal. After Costas died, Sunview never invoked that agreement; instead, at a December 14, 1984 meeting, Sunview rejected the estate's offer for the shares as unaffordable, and one business day later Stella personally agreed to buy the same shares on similar terms secured by Sunview's assets. Eight years later, John sued derivatively, claiming Stella had diverted a corporate opportunity.

Issue

Whether Stella and Demos breached fiduciary duties by failing to present properly to Sunview the opportunity to purchase Costas's shares before Stella purchased them herself. The court also considered whether John ratified Stella's purchase, whether Stella was entitled to attorneys' fees and past bonus payments, and whether the Court of Chancery should have appointed a custodian.

Rule

A fiduciary may not take for herself an opportunity that should first be presented to the corporation. Under Guth, a corporate opportunity exists when an opportunity is financially able to be undertaken by the corporation, is in the corporation's line of 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 interest; but in this case the court held that fiduciaries breach their duties when they fail properly to present the opportunity to the corporation before taking it themselves. Ratification is effective only if stockholders are fully informed, and the burden to prove fully informed approval rests on the party asserting ratification.

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

Harbor Lantern Holdings, a closely held Delaware corporation in Annapolis, owns waterfront rental property. Its stockholders signed an agreement requiring any selling stockholder to give written notice to the corporation so the corporation may decide first whether to buy the shares. When Omar died, director Lena Park privately negotiated with Omar's estate, the board informally said the corporation could not afford the shares, and Lena bought them herself the next day on the same price terms.

If another stockholder brings a derivative suit, which is the strongest basis for finding Lena breached her fiduciary duty?

Explanation. The majority held that the dispositive problem was not the unresolved standard for financial inability, but the fiduciaries' failure properly to present the opportunity to the corporation before taking it personally. Where a restriction agreement gives the corporation the first chance to buy and the fiduciary bypasses that process, the fiduciary breaches the duty of loyalty.