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Northeast Harbor Golf Club v. Harris, Part 2

II. CROSS APPEAL OF THE CLUB
	[¶24]  In its cross-appeal the Club contends that Harris breached her
fiduciary duty to the corporation, independent of a corporate opportunity,
when she decided to develop the properties in 1988 because development
was contrary to the Club's interests.{7}  Maine law requires that "[t]he
directors and officers of a corporation shall exercise their powers and
discharge their duties in good faith with a view to the interests of the
corporation . . . ."  13-A. M.R.S.A. § 716 (Supp. 1998).  It follows that
directors and officers cannot "serve themselves and the corporation at the
same time," Northeast Harbor Golf Club, Inc. v. Harris, 661 A.2d 1146, 1150
(Me. 1995) (quoting Camden Land Co. v. Lewis, 101 Me. 78, 97, 63 A. 523,
531 (1905)), nor can they "secure a private advantage at the expense 
of the corporation."  3 Fletcher Cyc. Corp. § 837.5 (Permanent ed. 1994). 
Whether a director or officer breaches her duty of loyalty is primarily a
question of fact.  See Broz v. Cellular Info. Sys., Inc., 673 A.2d 148, 154 (De.
1996).  We review issues of fact for clear error.  See, e.g., White v. Zela, 1997
ME 8, ¶ 3, 687 A.2d 645.
	[¶25]  When personal interests diverge from the corporation's
interest, a conflict of interest arises.  To establish a conflict of interest, the
Club would have to show that, while Harris was a director and officer of the
Club, the development of land surrounding the golf course was contrary to
the Club's interests.  The last time we reviewed this case, we noted that the
"record would support a finding that the Club had made the policy judgment
that development of surrounding real estate was detrimental to the best
interests of the Club."  Northeast Harbor Golf Club, Inc., 661 A.2d at 1149. 
In the decision on remand, however, the trial court found that the Club had
"never adopted expressly or by implication any policy of nondevelopment."{8} 
There is competent evidence in the record to support that factual finding. 
In the 1970's and 1980's, in an effort to improve its financial condition, the
board took steps toward developing its own surrounding real estate:  in
1977 the board authorized Harris to form a committee to study
development; in 1982 the board voted to approve a plan to build five houses
on Club land; in 1983 the board resolved that "the land development project
should go forward if at least three lots were sold;" and in 1984 the board
reached a consensus "that the Club would entertain a proposal for one or
two people to . . . buy two lots . . . ."  Although some members of the board
expressed concerns, the majority of the board always supported cautious
steps toward development.
	[¶26]  To support its contention that the corporation had a policy
against development, the Club relies entirely on the minutes of the 1988
meeting.  Although those minutes show that "concerns" were expressed
regarding the undesirability of development, they also reflect sentiment that
development could be of interest to the Club at some time in the future.  In
light of the steps the board had taken toward development in the 1970's
and 1980's, the court's finding that the Club had not adopted a policy of
nondevelopment is not clearly erroneous.
	[¶27]  Accordingly, there is insufficient evidence to support an
additional cause of action for a conflict of interest in 1988 when Harris
began developing the property.
	The entry is:
Judgment vacated.  Remanded to the Superior
Court for entry of a judgment for the defendant.

Attorney for plaintiff: James B. Haddow, Esq., (orally) Petrucelli & Martin, LLP P O Box 9733 Portland, ME 04104-5033 Attorneys for defendants: Jonathan T. Harris, Esq., (orally) Philip M. Coffin, III, Esq. Lambert, Coffin, Rudman & Hochman P O Box 15215 Portland, ME 04112-5125
FOOTNOTES******************************** {1} . A Northeast Harbor real estate broker had approached Harris, because she was the president of the Club, and told her of an opportunity to purchase the property. {2} . While playing golf with the postmaster of Northeast Harbor, Harris learned that property owned by the heirs of the Smallidge family might be available for purchase . {3} . In 1990, because the Smallidge property was landlocked, Harris purchased a house and property separating the Smallidge property from the road for $275,000. {4} . The ALI defines corporate opportunity as: (1) Any opportunity to engage in a business activity of which a director or senior executive becomes aware, either: (A) In connection with the performance of functions as a director or senior executive, or under circumstances that should reasonably lead the director or senior executive to believe that the person offering the opportunity expects it to be offered to the corporation; or (B) Through the use of corporate information or property, if the resulting opportunity is one that the director or senior executive should reasonably be expected to believe would be of interest to the corporation; or (2) Any opportunity to engage in a business activity of which a senior executive becomes aware and knows is closely related to a business in which the corporation is engaged or expects to engage. Principles of Corporate Governance § 5.05(b) (emphasis added). Section 505(b)(1) applies to Harris's purchase of the Gilpin property. Because Harris did not become aware that the Smallidge property was available for purchase in her capacity as Club president, section 5.05(b)(2) is applicable to the purchase of that property. {5} . The opportunity must be rejected by a majority of disinterested directors, after full disclosure, or in the alternative, the director or officer taking the opportunity must prove that the taking of the opportunity was fair to the corporation. See id. at § 5.05(a)(2)-(3). Fairness to the corporation is no defense, however, if the opportunity is taken without first offering it to the corporation. Id. {6} . See 14 M.R.S.A. § 859 (Supp. 1997). The court found no fraud on the part of Harris. {7} . The breach of fiduciary duty cause of action was alleged against Harris in an amended complaint. {8} . Because the trial court found that Harris's usurpation of a corporate opportunity was a viable cause of action, it never directly addressed the Club's separate count of a breach of fiduciary duty arising out of Harris's decision to develop her property. The court, however, did make the finding of fact concerning a policy of nondevelopment while addressing the Club's claim that Harris usurped a corporate opportunity by buying the properties.
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