Opinion ID: 2052439
Heading Depth: 2
Heading Rank: 1

Heading: Presentation to the Board:

Text: In concluding that Broz had usurped a corporate opportunity, the Court of Chancery placed great emphasis on the fact that Broz had not formally presented the matter to the CIS board. The court held that in such circumstances as existed at the latest after October 14, 1994 (date of PriCellular's option contract on Michigan 2 RSA) it was the obligation of Mr. Broz as a director of CIS to take the transaction to the CIS board for its formal action.... 663 A.2d at 1185. In so holding, the trial court erroneously grafted a new requirement onto the law of corporate opportunity, viz., the requirement of formal presentation under circumstances where the corporation does not have an interest, expectancy or financial ability. The teaching of Guth and its progeny is that the director or officer must analyze the situation ex ante to determine whether the opportunity is one rightfully belonging to the corporation. If the director or officer believes, based on one of the factors articulated above, that the corporation is not entitled to the opportunity, then he may take it for himself. Of course, presenting the opportunity to the board creates a kind of safe harbor for the director, which removes the specter of a post hoc judicial determination that the director or officer has improperly usurped a corporate opportunity. Thus, presentation avoids the possibility that an error in the fiduciary's assessment of the situation will create future liability for breach of fiduciary duty. It is not the law of Delaware that presentation to the board is a necessary prerequisite to a finding that a corporate opportunity has not been usurped. The numerous cases decided since Guth are in full accord with this view of the doctrine. For instance, in Field v. Allyn, Del. Ch., 457 A.2d 1089 (1983), the Court of Chancery held that a director or officer is free to take a business opportunity for himself once the corporation has rejected it or if it can be shown that the corporation is not in a position to take the opportunity. The Field court held this to be true even if the fiduciary became aware of the opportunity by virtue of the fiduciary's position in the corporation. Id. at 1099. Notably, this Court affirmed the Field holding on the basis of the well reasoned opinion of the court below. Field v. Allyn, Del.Supr., 467 A.2d 1274 (1983). Field is not unique, however. The view that presentation to the board is not required where the opportunity is one that the corporation is incapable of exercising is also expressed in other cases. See, e.g., Wolfensohn v. Madison Fund, Inc., Del.Supr., 253 A.2d 72, 76 (1969). Other cases, such as Kaplan v. Fenton, Del.Supr., 278 A.2d 834 (1971), have found no violation of the corporate opportunity doctrine where the director determined that the corporation was not interested in the opportunity, but never made formal presentation to the board. The director in Kaplan asked the CEO and another board member if the corporation would be interested in the opportunity and whether he should present the opportunity to the board. These questions were answered in the negative and the director then acquired the opportunity for himself. The Kaplan Court found no breach of the doctrine, despite the absence of formal presentation. [9] The Court of Chancery cited Yiannatsis v. Stephanis, Del.Supr., 653 A.2d 275 (1995), in support of the proposition that formal presentation to the board of directors is a necessary prerequisite to a corporate fiduciary taking an opportunity for his own. See 663 A.2d at 1182. In Yiannatsis, the opportunity in question was a block of stock in a closely held corporation, the holder of which was subject to a right of first refusal held by the corporation. Two of the three directors of the corporation caused the company to refuse the opportunity and, as a result, the corporation never invoked its right of first refusal. This Court held that the corporate fiduciaries had acted surreptitiously to keep the opportunity from being exercised by the corporation, when they had no reasonable ground to believe that the corporation would not be interested therein. This background of bad faith is not present in the case at bar. Here, Broz had substantial reason to believe that CIS was not interested in or able to take advantage of the Michigan-2 opportunity. Accordingly, Yiannatsis is not relevant to the analysis here. Thus, we hold that Broz was not required to make formal presentation of the Michigan-2 opportunity to the CIS board prior to taking the opportunity for his own. In so holding, we necessarily conclude that the Court of Chancery erred in grafting the additional requirement of formal presentation onto Delaware's corporate opportunity jurisprudence. [10]