Court Opinion

ID: 9452894
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:55:40.436251+00
Date Added: 2024-06-11T17:33:24.366963
License: Public Domain

HAYS, Circuit Judge
(dissenting):
I dissent.
My brothers hold that the scope of a director’s duty to his corporation must be measured by the facts of each case. However, although they are unable to find any New York case presenting the same facts as those before us, they conclude that New York law does not support the imposition of liability in the circumstances of this case. I do not agree.
In an often quoted passage, the New York Court of Appeals laid down the principles of fiduciary conduct:
“Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘disintegrating erosion’ of particular exceptions. Wendt v. Fischer, 243 N.Y. 439, 444, 154 N.E. 303,[1926]. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd.” Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546, 62 A.L.R. 1 (1928), See, e. g., Albert A. Volk Co., Inc. v. Fleschner Bros., Inc., 298 N.Y. 717, 83 N.E.2d 15 (1948); Foley v. D’Agostino, 21 A.D.2d 60, 66-68, 248 N.Y.S. 2d 121, 128-129 (1st Dept. 1964) and cases there cited.
Applying these standards to the instant case it seems clear that in the absence of a contrary agreement or understanding between the parties, the Horns, who were majority stockholders and managing officers of the Darand Corporation and whose primary function was to locate suitable properties for the company, were under a fiduciary obligation to offer such properties to Darand before buying the properties for themselves. See Note, Corporate Opportunity, 74 Harv.L.Rev. 765, passim (1961). See also Note, Fiduciary Duty of Officers and Directors Not to Compete With the Corporation, 54 Harv.L.Rev. 1191 (1941). That the Horns used Darand’s funds to effectuate certain of these purchases reinforces the conclusion that their conduct was improper and failed to comport with the standards established by law.1 Cf. Guth v. Loft, Inc., 23 Del.Ch. 255, 5 A.2d 503 *903(Sup.Ct.1939); Note, supra, 74 Harv.L.Rev. at 776-778.
Since the Horns were under a fiduciary duty imposed by law not to take advantage for themselves of corporate opportunities, it is irrelevant that, as the district court found, there was no agreement under which “the Horns would contract their real estate activities or offer every property they located to Darand.” A fortiori the Horns were not free to select the best properties for themselves. See Kelly v. 74 & 76 West Tremont Avenue Corp., 4 Misc.2d 533, 535-537, 151 N.Y.S.2d 900, 902-904 (Sup.Ct.1956), modified, 3 A.D.2d 821, 160 N.Y.S.2d 932 (1st Dept.), aff’d mem., 3 N.Y.2d 973, 169 N.Y.S.2d 39, 146 N.E.2d 795 (1957); Restatement (2d), Agency § 39§, comment b.

. The evidence in the record is insufficient to support the finding that the Burgs were aware of the Horns’ purchases outside Darand and knew the purposes of the loans from Darand to the Horns but nevertheless acquiesced in the Horns’ activities.