Broz v. Cellular Information Systems Inc.
| Broz v Cellular Information Systems Inc | |
|---|---|
| Citation(s) | 673 A2d 148 (Del Supr 1996) |
| Keywords | |
| Directors' duties | |
Broz v Cellular Information Systems Inc, 637 A2d 148 (Del Supr 1996) is a US corporate law case, concerning the standard in Delaware corporations regarding conflicts of interest. It exemplifies that the Delaware courts spend considerable resources inquiring into whether a director has had an actual conflict of interest, as opposed to the traditional common law approach which demanded that there should be no possibility of a conflict.[1]
Facts
Broz was sole shareholder and president of RFB Cellular Inc. RFB held telecommunications licences for a number of districts of Michigan. Broz was also a non-exec of CIS, in the same business in the upper mid west. As owner of RFB, a tele-licence broker called Mackinac came up to Broz and offered him a licence in Michigan (both RFB and CIS operated in Michigan). Broz started negotiating without telling CIS’s board. Broz did not think CIS would be interested in the same opportunity, because it was shedding licenses to try and stave off bankruptcy. Broz had discussed the matter informally with the CIS board. After he got the licence, Pri-Cellular acquired CIS, and the company was saved. They sued Broz for breaching his fiduciary duty of loyalty, diverting the opportunity to himself. (Pri-Cellular and RFB were themselves absorbed by Dobson Cellular in 1998 and 2004, which was itself bought out by AT&T in 2007.)
Judgment
The Delaware Supreme Court held that Broz was not under any obligation to offer the Michigan-2 licence to the CIS board, the opportunity being one that had come to him personally. The plaintiff company had lacked both the interest and the financial means to acquire the licence for itself.
| “ | First, we find that CIS was not financially capable of exploiting the Michigan-2 opportunity. Although the Court of Chancery concluded otherwise, we hold that this finding was not supported by the evidence.
[...] The Court in Guth also derived a corollary which states that a director or officer may take a corporate opportunity if: (1) the opportunity is presented to the director or officer in his individual and not his corporate capacity; (2) the opportunity is not essential to the corporation; (3) the corporation holds no interest or expectancy in the opportunity; and (4) the director or officer has not wrongfully employed the resources of the corporation in pursuing or exploiting the opportunity. [...] No one factor is dispositive and all the facts must be taken into account insofar as they are applicable. |
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See also
Notes
- ↑ cf Keech v Sandford [1726] EWHC Ch J76