What constitutes “usurpation of corporate opportunity”? There is no clear answer. However, an opinion by the Texarkana Court of Appeals is instructive.
During merger negotiations, the company’s Chief Financial Officer (who was also a director and stockholder in the company) and another director/stockholder agreed that the CFO would waive an important provision in his employment contract in exchange for a promise by the other director/stockholder to provide the CFO with an interest in three new stock offerings. The CFO’s employment contract provided that the CFO would have guaranteed continued employment or a large monetary award if he was terminated as a result of a change in control of the company. The CFO apparently believed the merger would benefit the company but not him personally.
After the merger was finalized, the corporation reassigned the CFO. The CFO claimed he was constructively terminated and sued the corporation. The corporation filed suit against the former CFO, asserting several claims, including breach of fiduciary duty for usurpation of corporate opportunity. The corporation argued that in making the deal with the director/stockholder and accepting the stock, the former CFO breached a fiduciary duty owed to the company.
At trial, the court granted the corporation’s motion for summary judgment and ordered the former CFO to pay to the corporation the money he had made from the stock.
In its opinion, the court of appeals noted that in order to establish a breach of fiduciary duty for usurpation of corporate opportunity, the corporation must prove that an officer or director misappropriated a business opportunity that properly belonged to the corporation.
The court found that there was no evidence that the opportunity from which the former CFO benefited was a corporate opportunity. Although the former CFO may have blocked the merger if he had declined to waive his contractual rights, he did not do that. The merger was completed; therefore, the corporation was not harmed by the former CFO’s actions.
As this opinion demonstrates, to establish a claim for usurpation of corporate opportunity, the corporation must sustain actual harm. It is not sufficient for the corporation to assert that it merely could have been harmed. Here, the CFO’s actions did not harm the corporation.