Energy Res. Corp. v. Porter - 14 Mass. App. Ct. 296, 438 N.E.2d 391 (1982)

Rule:

Before a person invokes refusal to deal as a reason for diverting a corporate opportunity he must unambiguously disclose that refusal to the corporation to which he owes a duty, together with a fair statement of the reasons for that refusal.

Facts:

From 1976 to 1979, James H. Porter was vice-president and chief scientist of Energy Resources Corporation, Inc. (ERCO). On October 5, 1979, he resigned and organized Energy & Environmental Engineering, Inc. (EEE). The first business EEE undertook was a research project, to be done in collaboration with Howard University, for the United States Department of Energy concerning a method of burning high sulfur coal which would produce little air pollution. ERCO complains that Porter diverted a corporate opportunity, violated his employment agreement with ERCO and misappropriated trade secrets. A Superior Court judge sitting without a jury heard the case and entered judgment for the defendants.

Issue:

Did Porter violate his employment agreement with ERCO when he diverted the latter’s corporate opportunity?

Answer:

Yes.

Conclusion:

The court held that before Porter invoked the refusal to deal as a reason to divert ERCO’s opportunity, he should have unambiguously disclosed the refusal to ERCO, together with a fair statement of the reasons for the refusal. The court held that the diversion of ERCO’s opportunity was a breach of the employment agreement to promote the business of Porter.