Burg v. Horn - 380 F.2d 897 (2d Cir. 1967)

Rule:

Some articulate that any opportunity within a corporation's "line of business" is a corporate opportunity. This statement seems to the court too broad a generalization. The court thinks that under New York law, a court must determine in each case, by considering the relationship between the director and the corporation, whether a duty to offer the corporation all opportunities within its "line of business" is fairly to be implied.

Facts:

Plaintiff Lillian Burg was a stockholder of Darand Realty Corp., a New York corporation which owns and operates low-rent rooming and apartment buildings in Brooklyn. Plaintiff filed a derivative lawsuit against defendants George and Max Horn alleging that nine similar buildings acquired by defendants were corporate opportunities that belonged to the corporation, of which the defendants were also stockholders. The case required the court to consider the scope of the duty imposed by New York law on directors and majority stockholders not to appropriate for themselves opportunities which would be advantageous to their corporation. The district court dismissed plaintiff’s complaint that defendants breached their duties to the corporation by seizing a corporate opportunity. Plaintiff appealed.

Issue:

Did the properties purchase by defendants were corporate opportunities of the corporation?

Answer:

No.

Conclusion:

The court affirmed the lower court's judgment. The court concluded that, under New York law, the properties acquired by defendants were not corporate opportunities of the corporation. The court held that a director may be barred from competing with his corporation even though he does not by doing so appropriate a corporate opportunity. But the duty not to compete, like the duty to offer opportunities to the corporation, is measured by the circumstances of each case, so that the considerations which led us to hold that the properties acquired by the Horns were not corporate opportunities strongly suggest a finding that the defendants were free to compete by acquiring them. In any event, there is no evidence in the record suggesting that the corporation has been harmed by the defendant's ownership and operation of the properties they acquired.