Ostrowski v. Avery - 243 Conn. 355, 703 A.2d 117 (1997)

Rule:

To prevail on a claim of breach of fiduciary duty by a corporate officer, a plaintiff bears the burden of establishing: (1) a fiduciary relationship between the corporation and the alleged wrongdoers; and (2) the existence of a corporate opportunity. Once a plaintiff establishes these predicates to liability, the burden then shifts to the fiduciaries to establish, by clear and convincing evidence, the fairness of their dealings with the corporation.

Facts:

Appellee corporate officers of a company that manufactured large abrasive wheels formed a new company and undertook the manufacture of small abrasive wheels. Appellant minority shareholders filed an action against appellees alleging breach of fiduciary duty. The trial court held that although appellees were fiduciaries, there was no improper usurpation of a corporate business opportunity because appellees had obtained permission from the majority shareholder, father of one of the appellees. Appellants sought review.

Issue:

Under the circumstances, did the trial court err in awarding judgment in favor of appellee corporate officers, notwithstanding the finding of a fiduciary duty on the part of the appellees?

Answer:

Yes.

Conclusion:

The court reversed and granted a new trial, holding that once the existence of a fiduciary duty was shown, the burden shifted to the fiduciary to prove fair dealing. The court declined to impose a bright-line rule requiring disclosure of corporate opportunities, holding instead that adequate disclosure would be an absolute defense to fiduciary liability for alleged usurpation. The court held that in the absence of full disclosure a fiduciary could prove his bona fides by clear and convincing evidence that his conduct did not harm the corporation and that a court should give special weight to the effect of nondisclosure on the corporation's entrepreneurial opportunities.