Opinion ID: 563297
Heading Depth: 3
Heading Rank: 1

Heading: Fiduciary Duty and By-Law Analysis

Text: 46 The district court held that there were substantial questions raised about the propriety of the manner in which the board passed the U-groove ban. The individual professional player plaintiffs have alleged that the PGA directors breached their fiduciary duties by breaching the by-laws, directly and indirectly, and by voting on an issue in which they had conflicting financial interests. 47 To the extent that the individual plaintiffs are members of the PGA organization, the individual plaintiffs argue that the members of the board of directors owe them a fiduciary duty. See Levin v. Levin, 43 Md.App. 380, 390, 405 A.2d 770, 777 (1979) (board of directors member owes the corporation a fiduciary duty). The professional player plaintiffs argue that the player directors and the officer directors have a duty to act in the best interests of the corporation and [they are] prohibited from using [their] position ... for [their] private gain. Id. The PGA argues that Maryland law allows interested directors to act after full disclosure to the board and approval by the non-interested directors. See Md.Corps. & Ass'ns Ann.Code Sec. 2-419. However, that statute only states that a contract or transaction is not void or voidable solely on the basis that an interested director voted on it. That section does not address whether there is a violation of the director's fiduciary duties when the interested director votes. The district court did not misapprehend Maryland law in the present case. See Caribbean Marine Servs. Co., 844 F.2d at 673 (preliminary injunction will be reversed if the district court misapprehends the substantive law in assessing the merits). 48 The district court held that the first vote of the PGA Policy Board violated the by-laws of the PGA. The by-laws required the player directors to vote on rule changes. However, the district court found that none of the player directors voted to adopt the U-groove ban in violation of those by-laws because each of the player directors had a financial conflict. This conflict was due to ties to competing manufacturers of golf clubs. Subsequently, each of the directors voted to change the by-laws to allow the noninterested directors to vote, in the very same meeting and possibly with the intention of allowing the other directors to pass the regulation. Voting on a matter on which a director has a conflict of interest may violate that director's fiduciary duty. A court may intervene to prevent (or annul) conduct on the part of directors that is fraudulent or represents a breach of their fiduciary obligations. Mountain Manor Realty, Inc. v. Buccheri, 55 Md.App. 185, 194, 461 A.2d 45, 51 (1983). 49 We are not prepared to rule on the merits of these questions at this stage of the litigation and on this undeveloped record. We hold only that the district court did not abuse its discretion in determining that this case raises serious questions that must be resolved at trial.