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Law School Case Brief

Broz v. Cellular Info. Sys. - 673 A.2d 148 (Del. 1996)

Rule:

A corporate officer or director may not take a business opportunity for his own if: (1) the corporation is financially able to exploit the opportunity; (2) the opportunity is within the corporation's line of business; (3) the corporation has an interest or expectancy in the opportunity; and (4) by taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position inimicable to his duties to the corporation.

Facts:

Robert Broz, the President and sole stockholder of RFB Cellular, Inc. (“RFBC”), a Delaware corporation engaged in the business of providing cellular telephone service in the Midwestern United States, purchased a cellular telephone service license for the benefit of RFBC. The license, known as the Michigan-2 Rural Service Area Cellular License (“Michigan 2”), was issued by the Federal Communications Commission ("FCC"). The license entitled its holder to provide cellular telephone service to a portion of northern Michigan. Cellular Information Systems, Inc., a publicly held Delaware corporation and a competitor of RFBC, brought an action against Broz and RFBC for equitable relief, contending that the purchase of this license by Broz constituted a usurpation of a corporate opportunity properly belonging to CIS, irrespective of whether or not CIS was interested in the Michigan-2 opportunity at the time it was offered to Broz. The Delaware Court of Chancery ruled in favor of CIS and imposed a constructive trust against the agreement. Broz sought review, contending that the trial court erred in holding that he breached his fiduciary duties to CIS and its stockholders. Specifically, Broz asserted that he was under no obligation formally to present the corporate opportunity to the CIS Board of Directors. 

Issue:

Did the Delaware trial court err in its decision finding the diversion of a corporate opportunity and the imposition of a constructive trust against an agreement to purchase cellular telephone service license?

Answer:

Yes.

Conclusion:

Reversing on appeal, the Supreme Court of Delaware held that the lower court erred when it decided in favor of defendant CIS and imposed a constructive trust. According to the Court, Broz did not divert a corporate opportunity that properly belonged to CIS; thus, Broz had no duty to formally present the purchase opportunity to the CIS Board of Directors. The Court explained that the corporate opportunity doctrine represents a judicially crafted effort to harmonize the competing demands placed on corporate fiduciaries in a modern business environment. The doctrine seeks to reduce the possibility of conflict between a director's duties to the corporation and interests unrelated to that role. Broz adhered to his obligations to CIS and did not breach his fiduciary duties. The trial court erred as a matter of law in concluding that Broz had a duty formally to present the Michigan-2 opportunity to the CIS board. Accordingly, the trial court erred in its application of the corporate opportunity doctrine under the unusual acts of this case, 

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