Opinion ID: 2011277
Heading Depth: 1
Heading Rank: 2

Heading: stella's purchase of the costas stock

Text: A trial court's finding on the duty of loyalty ... being `fact dominated,' [is], on appeal, entitled to substantial deference unless clearly erroneous or not the product of a logical and deductive reasoning process. Cede & Co. v. Technicolor, Inc., Del.Supr., 634 A.2d 345, 360 (1993) (quoting Citron v. Fairchild Camera & Instrument Corp., Del. Supr., 569 A.2d 53, 64 (1989)). Generally, this Court will begin its inquiry into whether a corporate opportunity has been usurped with the test set forth in Guth v. Loft, Inc., Del.Supr., 5 A.2d 503 (1939). Guth provides that such a situation exists: [I]f there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is ... in the line of the corporation's business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and, by embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation.... Id. at 511; see also Fliegler v. Lawrence, Del.Supr., 361 A.2d 218, 220-21 (1976) (holding conflict arose where defendants stood on both sides of corporate opportunity); Schreiber v. Bryan, Del. Ch., 396 A.2d 512, 519 (1978) (corporate opportunity seized when the opportunity is one in which corporation has an interest or expectancy, the corporation is financially able to take advantage of the opportunity, and the individual acted in an official rather than individual capacity). Demos and Stella do not argue with the Court of Chancery's formulation of the test for determining whether a corporate opportunity has been usurped, or with the court's application of the test to the instant facts. Rather, they claim that the court incorrectly found that Sunview was financially able to purchase the Costas Stock, and as a result, reached the erroneous conclusion that Stella usurped a corporate opportunity. As the Court of Chancery noted in Stephanis I, Delaware has never considered what standard should be used when determining whether a corporation is financially able to avail itself of a corporate opportunity. Stephanis I, slip op. at 8. The Court of Chancery relied generally on 18B AM.JUR.2D Corporations § 1790 (1985) for the proposition that mere technical insolvency, such as the inability to pay current bills when due or mere inability to secure credit, will not suffice [to show financial inability]. The corporation must be actually insolvent. See also CST, Inc. v. Mark, 360 Pa.Super. 303, 520 A.2d 469, 472, appeal denied, 517 Pa. 630, 539 A.2d 811 (1987); Annotation, Financial Inability of Corporation to Take Advantage of Business Opportunity as Affecting Determination of Whether Corporate Opportunity was Presented, 16 A.L.R.4th 185 (1982). Using this standard, the court found that Sunview was not insolvent and could have completed the transaction as evidenced by (1) Sunview's $150,000 offer to buy the Costas Stock one month before Stella bought the Stock; (2) Sunview's ability to reduce payments to its stockholders to generate more income for Sunview; (3) Sunview's ownership of real estate worth more than one million dollars; (4) the fact that Demos and Stella owned substantial assets; and (5) Stella's securitization of the $55,000 with Sunview's assets. Demos and Stella contend that the Court of Chancery erred in requiring a finding of insolvency before a corporation can be said to be financially unable to avail itself of a corporate opportunity. There is no need for us to consider either this claim of error or the Court of Chancery's findings of financial inability. Accordingly, we do not determine whether or not the insolvency-in-fact standard adopted by the Court of Chancery for determining financial inability is the appropriate standard to apply in corporate opportunity cases. [2] We hold instead that this case turns on the Court of Chancery's finding that Sunview never invoked the 1975 Agreement upon the death of Costas, Stephanis I, slip op. at 3. Accordingly, we hold that Demos and Stella breached the fiduciary duties they owed to John and Sunview by failing to present properly the opportunity to Sunview to purchase Costas' shares. The record reveals that Sunview's opportunity to purchase the Costas Stock was never properly presented to Sunview, and that Demos and Stella acted without regard for the 1975 Agreement or the fiduciary duties they owed to Sunview and John. [3] Demos' and Stella's claim that Sunview applied for a loan but was rejected is not borne out by the evidence. Sussex Trust (now known as Wilmington Trust), the bank that Demos and Stella claim rejected Sunview's loan application, has no record of Sunview ever attempting to obtain a loan, much less being rejected for one. Further, the minutes of the December 14, 1984 Sunview Annual Board of Directors' Meeting reflect that the Costas Stock price was determined at the meeting where Stella agreed to purchase the Costas Stock. Given this fact, it would be impossible for Sunview to explore adequately the possibility of purchasing the relevant stock before Stella decided to buy it herself. It is clear that Demos' and Stella's actions are classic examples of the acts of faithless fiduciaries, and they should not benefit from their wrongful actions. This case proves that [w]hat's wrongly got is soonest lost. [4]