Pg 30 Flashcards
What are examples of opportunities that would be within the corporation’s line of business for the corporate opportunity doctrine?
Any activity that the corporation has the fundamental knowledge, practical experience, and ability to pursue. Anything that is related to or in the company’s regular line of business or that the company would reasonably expect to enter into belongs to the company.
If a director of a soda pop company bought Pepsi’s secret formula from a bankrupt corporation, made a new corporation with money from the soda pop company, used its facilities and materials to perfect the mix, then sold it to the corporation to distribute at 10%, would that be an appropriation of a business opportunity?
Yes, because the opportunity was so closely associated with the existing business of the corporation and it was within the scope of the fiduciary duty to the corporation (not to mention using the materials and space).
If a corporation is in the business of land development, and an opportunity comes up to quickly profit by buying a parcel of land, would that be within the corporate opportunity doctrine?
Yes, that opportunity would belong to the corporation
If a corporation is a wholesale nursery and a director learned that the owners of the nursery nearby want to sell, and the corporation has the fundamental knowledge, experience, and ability to pursue the operation of another nursery, what would the director have to do?
He would have to ask the corporation first if they wanted that opportunity before he could act on it privately
If a director or an officer decides not to take advantage of some opportunity that comes up, what must he still do?
Tell the corporation about the opportunity, otherwise that is a violation of his fiduciary duty.
What are some other tests that are used to determine misappropriation or usurpation of corporate opportunity?
– multiple factor approach
– ALI test
– close corporate setting
What is the multiple factor approach that is another test that is used to determine misappropriation or usurpation of corporate opportunity?
This asks if a director or officer has usurped a corporate opportunity by weighing these factors for each individual case:
- opportunity to acquire real property, patents, or things that are needed for the corporation
– if the director or officer discovered information because of his official position
– if the company is in the market or negotiating for that opportunity, or if they have abandoned in their effort for that opportunity
– if the director or officer was specially charged with the duty of getting that kind of opportunity for the business
– if the director or officer used corporate funds and facilities to get/develop the opportunity
– taking the opportunity put the director or officer in an adverse or hostile position to the corporation
– if the director or officer intends to resell the opportunity to the corporation
– if the corporation was in a favourable position to take advantage of that opportunity, or if they were financially not able to
What is the ALI test that is another test to determine misappropriation and usurpation of corporate opportunity?
It says that a corporate opportunity is any opportunity to engage in a business activity that the director or officer became aware of through:
– connection with her functions as a director or officer
– by using corporate information or property
– something they became aware of and knew was closely related to a business the corporation was engaged in
What is involved in the element of the ALI test for misappropriation of corporate opportunity that says that the connection was with their function as a direct officer?
If under the circumstances that person that they were dealing with reasonably believed they were offering the opportunity to the corporation
What is involved in the element of the ALI test for determining misappropriation or usurpation of corporate doctrine that says that you used the corporate information or property?
The opportunity must be one that the director or officer should reasonably be expected to believe would be of interest to the corporation
Is it possible to argue things like incapacity or inability of the corporation to embrace a corporate opportunity as an excuse for misappropriation or usurpation of corporate opportunity?
No, there can be no excuses.
If the facts say that a corporation has very little capital available for expansion right now, does that mean they are not able to get more, so the directors and officers can take advantage of that opportunity?
No, because it is possible that the company could borrow money
What is the only defence that a director or officer can use with regard to misappropriation or usurpation of corporate opportunity?
Arguing that the board or the shareholders rejected the opportunity and thus that the director or officer got approval from the board before he went forward with personally taking the opportunity
If an opportunity comes along that an officer or director discloses to a corporation and the corporation rejects that opportunity, is the director or officer then free to pursue the opportunity himself?
Yes so long as:
- the rejection is fair to the corporation
- made in advance by disinterested directors
- or ratified by disinterested shareholders
Acceptance or rejection must occur promptly
What is the closest corporate setting approach/test for determining misappropriation or usurpation of corporate opportunity?
This is a flexible approach that has factors to determine if a corporate opportunity was usurped:
– the co-owners were aware when the corporation was formed that the fiduciary actively engaged in similar outside activities. Unless there is strong evidence of prejudice to creditors, it is not often held that a shareholder usurped a corporate opportunity
