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Minority Oppression: Conflicts of Interest - Taking Advantage of a Business Opportunity

By Scott I. Unger

A common theme through out previous blog posts is the basic concept that majority shareholders, officers and directors are fiduciaries. As a result of that position they owe to the corporation itself along to the other shareholders duties of care, loyalty and good faith. One area which often results in minority oppression and breach of fiduciary duty claims is when an officer, director or majority shareholder personally takes advantage of a business opportunity to the detriment of the corporation and its shareholders.
 

The corporate opportunity doctrine in New Jersey was defined in the seminal case of Valle v. North Jersey Automobile Club, 141 N.J. Super. 568, 573-574 (App. Div. 1976), mod on other ground, 74 N.J. 109 (1977).  In Valle, the Plaintiff's principal claim was that the directors had violated their fiduciary duties to the North Jersey Automobile Club by acquiring an insurance agency for their own interest.  The Appellate Division upheld the trial court's ruling that the defendant directors, in diverting business to themselves, committed a breach of trust which wrongfully deprived the Automobile Club of a corporate opportunity.  In doing so, the Valle Court recognized that at 'common law and by current authority in England and the United Stats directors of a private corporation are considered by equity to be in a fiduciary relationship with the corporation and its shareholders.' Moreover, the Court held that the corporate opportunity concept is one aspect of the general rule that a fiduciary's loyalties may not be divided.  
 

Hence, if a shareholder, officer or director is presented a corporate opportunity which the underlying corporation is financially able to undertake; is in line with the underlying corporation's business; or to which the underlying corporation had an interest or reasonable expectation of receiving that opportunity, then the fiduciary must present that opportunity to the underlying corporation to whom the fiduciary duty is owed. Failure to present that opportunity to the underlying corporation could be the basis of a breach of fiduciary duty and minority oppression claims.

Full post as published by New Jersey Law Blog on June 15, 2010 (boomark / email).