725 A.2d 1018 (Me. 1999)
The Northeast Harbor Golf Club, Inc. is a Maine corporation that operates a golf course in Mount Desert.1 Nancy Harris served as its president from 1971 until August 1990, during which time she assumed substantial responsibility for the Club's operations and frequently contributed her own funds to purchase equipment for the Club.2
Between 1972 and 1984, the board of directors, at Harris's urging, repeatedly discussed the possibility of purchasing and developing land surrounding the golf course or developing portions of the Club's own property to improve its financial condition, including authorizing a committee in 1977 and approving plans to build houses in 1982 and sell lots in 1984.3
In 1979, while serving as president, Harris learned of an opportunity to purchase property owned by Lucy Gilpin that adjoined the Club's property, including its driveway and parking lot and subject to an easement for golfers.4 Harris purchased the Gilpin property in her own name for $45,000. She did not disclose her plans to the board prior to acquiring the property and informed the directors at the 1979 meeting that she intended to hold the land for herself but that the golf club would be protected.5
In 1984, Harris learned independently of the availability of property owned by the Smallidge family that was surrounded on three sides by Club land.6 She purchased the Smallidge property in three transactions in February, March, and June of 1985 for a total of $60,000.7 Harris disclosed the purchase to the board at the August 1985 annual meeting, stating that she wanted the land to remain in friendly hands.8
In December 1988, Harris's son applied to subdivide part of the Gilpin property into five lots known as Bushwood, with approval granted in June 1991.9 Although the board took no formal position opposing the subdivision, some directors formed a separate group to challenge it.10 The board became divided over development.11 Harris resigned in 1990, and in 1991 the Club voted to challenge the subdivision, which proved unsuccessful.12 The Club filed suit against Harris on May 28, 1991, alleging usurpation of a corporate opportunity.13 The Superior Court initially ruled in Harris's favor, but after remand from the Supreme Judicial Court, it found that Harris had usurped a corporate opportunity and imposed a constructive trust; both parties appealed.14
Whether Nancy Harris usurped a corporate opportunity by purchasing the Gilpin and Smallidge properties?15
Under the ALI Principles of Corporate Governance § 5.05(b), a corporate opportunity exists when a director or senior executive learns of a business activity in connection with the performance of functions as a director.16 It also exists under circumstances that should reasonably lead the person to believe the opportunity should be offered to the corporation.17 A corporate opportunity also exists when the director knows the opportunity is closely related to a business in which the corporation is engaged or expects to engage.18 Full disclosure to the corporation is required before the director may pursue it.19
Yes. Harris learned of the Gilpin property in her capacity as president when a real estate broker approached her because of that position, and she purchased the property in her own name for $45,000 without prior disclosure to the board.20 The Gilpin property adjoined the Club's driveway, parking lot, and a golf easement, directly affecting the golf course operations.21 For the Smallidge property, although Harris learned of it independently while playing golf, the land was surrounded on three sides by Club property and adjacent to three golf holes, rendering it closely related to the Club's business of maintaining a golf course that depends on control over surrounding land to prevent hindering development.22
The Club had repeatedly discussed purchasing and developing adjacent land between 1972 and 1984, including authorizing a committee and approving plans to build houses, confirming the business relatedness under the ALI test.23
Harris usurped a corporate opportunity with respect to both the Gilpin and Smallidge properties.24
Whether the statute of limitations bars the Club's claims for usurpation of corporate opportunity?25
Under 14 M.R.S.A. § 752, all civil actions must be commenced within six years after the cause of action accrues.26 A cause of action for usurping a corporate opportunity accrues when the officer takes the opportunity without first offering it to the corporation.27 The limitations period begins to run at that moment even if the plaintiff has not immediately discovered the claim absent fraud.28
Yes. Harris purchased the Gilpin property in 1979 without offering it to the Club, and the Club filed suit on May 28, 1991, more than six years later, so the claim for the Gilpin property is barred.29 Harris contracted to purchase nine of the ten interests in the Smallidge property in February and March of 1985 without prior offer to the Club, and suit was not filed until May 1991, exceeding the six-year period from those purchase dates.30 The cause of action accrued upon the taking of the opportunity without disclosure, not upon later development in 1988, and no fraud was found that would toll the statute.31
The statute of limitations bars the Club's claims regarding the Gilpin property and nine-tenths of the Smallidge property.32
Whether laches bars the Club's claim regarding the one-tenth interest in the Smallidge property?33
Laches is the omission to assert a right for an unreasonable and unexplained length of time.34 It exists when the omission to assert the right has continued for an unreasonable and unexplained lapse of time, and under circumstances where the delay has been prejudicial to an adverse party, and where it would be inequitable to enforce the right.35
Yes. Harris disclosed the Smallidge purchase to the board in August 1985, yet the board took no formal action and later agreed it would not adopt any position on the subdivision application.36 In reliance on the Club's inaction, Harris purchased additional separating property for $275,000 in 1990 to enable development of the Smallidge land, an investment that would be substantially wasted if the Club prevailed.37 The Club's delay from 1985 until suit in 1991 was unreasonable and caused prejudice through Harris's substantial development expenditures.38
Laches bars the Club's claim regarding the remaining one-tenth interest in the Smallidge property.39
Whether Harris breached her fiduciary duty to the Club by developing the properties in 1988 independent of any corporate opportunity claim?40
Under 13-A M.R.S.A. § 716, directors and officers must exercise their powers and discharge their duties in good faith with a view to the interests of the corporation.41 Directors and officers may not secure a private advantage at the expense of the corporation.42 A conflict of interest arises when personal interests diverge from corporate interests.43
No. The Club had never adopted expressly or by implication any policy of nondevelopment; instead, between the 1970s and 1980s the board repeatedly took steps toward development of its own surrounding real estate, including authorizing a study committee in 1977, approving a plan to build five houses in 1982, resolving that the land development project should go forward if at least three lots were sold, and reaching consensus in 1984 that the Club would entertain proposals to buy lots.44 Although some concerns about development were expressed at the 1988 meeting, the majority of the board had always supported cautious steps toward development, so Harris's decision to develop did not conflict with an established corporate policy against development.45
Harris did not breach her fiduciary duty independent of the corporate opportunity claim.46