Source: https://www.cunninghambounds.com/blog/2018/october/corporate-opportunity-doctrine-constructive-trus/
Timestamp: 2019-04-19 07:15:01+00:00

Document:
Mitchell v. K&B Fabricators, Inc., [Ms. 1170021, Sept. 28, 2018] __ So. 3d __ (Ala. 2018). This opinion (Mendheim, J.; and Stuart, C.J., and Parker, Main, and Bryan, JJ., concur) affirms in part a judgment entered by the Morgan Circuit Court following a bench trial with evidence heard ore tenus in a case involving alleged usurpation of corporate opportunities by businesses engaged in fabricating storm shelters. The Court affirms the judgment as to liability, but remands the case for the trial court to recalculate its damages award.
"The corporate fiduciary duty is divided into two parts: (1) a duty of care; and (2) a duty of loyalty. ... The corporate opportunity doctrine is one aspect of the duty of loyalty." Massey v. Disc Mfg., Inc., 601 So. 2d 449, 456 (Ala. 1992).
"The duty is only co-extensive with the trust, so that in general the legal restrictions which rest upon such officers in their acquisitions are generally limited to property wherein the corporation has an interest already existing, or in which it has an expectancy growing out of an existing right, or to cases where the officers' interference will in some degree balk the corporation in effecting the purposes of its creation."
Lagarde v. Anniston Lime & Stone Co., 126 Ala. 496, 502, 28 So. 199, 201 (1900).
"We think that this passage provides a workable definition of 'balking the corporate purpose.'"
Morad, 361 So. 2d at 8–9.
Ms. *22-24 (quoting Morad v. Coupounas, 361 So. 2d 6 (Ala. 1978). The Court summarizes Morad's essential holding regarding the duty of loyalty owed by corporate fiduciaries as "must 'not only affirmatively ... protect the interests of [the corporation], but also ... refrain from doing anything that would work injury to [the corporation], or ... deprive it of profit or advantage which its skill and ability might properly bring to it,' ... or 'in some degree balk [the corporation] in effecting the purposes of its creation.' ")). Ms. *26.
"[t]here is no 'safe harbor' for such divided loyalties .... When directors of a Delaware corporation are on both sides of a transaction, they are required to demonstrate their utmost good faith and the most scrupulous inherent fairness of the bargain. [Citations omitted.] The requirement of fairness is unflinching in its demand that where one stands on both sides of a transaction he has the burden of establishing its entire fairness, sufficient to pass the test of careful scrutiny by the courts."
Weinberger v. UOP, Inc., 457 A.2d 701, 710-11 (Del. 1983).
"'When acting in good faith, a director or officer is not precluded from engaging in distinct enterprises of the same general class of business as the corporation is engaged in; but he may not wrongfully use the corporation's resources therein, nor may he enter into an opposition business of such a nature as to cripple or injure the corporation.'"
Banks, 497 So. 2d at 462–63 (Ala. 1986).
"A constructive trust 'bears much the same relation to an express trust that a quasi contractual obligation bears to a contract.... [A]n obligation is imposed not because of the intention of the parties but to prevent unjust enrichment.' 3 Scott on Trusts § 462.1 (1939).
"Equity may also impress a constructive trust on property in favor of one beneficially entitled thereto against a person, who, against the rules of equity and against good conscience, in any way either has obtained or holds and enjoys legal title to property that in justice that person ought not to hold and enjoy. 3 Scott on Trusts § 462.1 (1939); Restatement (Restitution) § 160, Comment A (1937).
"Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 122 N.E. 378, 380 (1919)."
American Family Care, Inc. v. Irwin, 571 So. 2d 1053, 1058–59 (Ala. 1990). In short, a constructive trust is imposed when property is wrongfully acquired and held; the fact that the present holder of the property was not complicit in the wrongful acquisition will not necessarily prevent the imposition of a constructive trust.
Ms. *38-39. The purpose of a constructive trust in such circumstances is not to capture the profits the plaintiff corporation would have made, but to instead capture the profits wrongfully made by the new competitive business. (See Ms. 42-43 summarizing opinions).

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