Northeast Harbor Golf Club, Inc. v. Harris
661 A.2d 1146, 1995 Me. LEXIS 158 (1995)
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Rule of Law:
A corporate director or senior executive breaches their fiduciary duty by taking a corporate opportunity unless they first offer the opportunity to the corporation with full disclosure and the corporation formally rejects it.
Facts:
- Nancy Harris served as the president of the Northeast Harbor Golf Club, Inc. from 1971 to 1990.
- In 1979, a real estate broker offered Harris the Gilpin property, which consisted of several parcels located within the golf course, because he believed the Club would be interested in preventing development.
- Harris purchased the Gilpin property in her own name without prior disclosure to the Club's board, later telling them she had bought it and the Club would be 'protected'.
- In 1984, Harris learned of the available Smallidge parcel, which was surrounded on three sides by the golf course, and she acquired it in her own name.
- Harris informed the board in 1985 that she had purchased the Smallidge property but had no present plans to develop it.
- In 1988, while still serving as president, Harris and her children began the formal process of seeking approval to develop a five-lot subdivision on a portion of the Gilpin property.
- The Club's board had previously discussed developing some of its own real estate but had always decided against it.
Procedural Posture:
- Northeast Harbor Golf Club, Inc. filed a complaint against its former president, Nancy Harris, in the Maine Superior Court (trial court).
- The Club alleged that Harris breached her fiduciary duty by usurping corporate opportunities when she purchased and planned to develop land adjacent to the Club's golf course.
- Following a nonjury trial, the Superior Court entered a judgment in favor of Harris.
- The trial court found that Harris did not usurp a corporate opportunity because real estate acquisition was not in the Club's 'line of business' and the Club lacked the financial ability to make the purchases.
- Northeast Harbor Golf Club, Inc. (appellant) appealed the trial court's judgment to the Supreme Judicial Court of Maine (the state's highest court).
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Issue:
Does a corporate fiduciary breach their duty of loyalty by taking a potential corporate opportunity for themselves without first fully disclosing the opportunity and offering it to the corporation for formal rejection?
Opinions:
Majority - Roberts
Yes, a corporate fiduciary breaches their duty of loyalty by taking a potential corporate opportunity for themselves without first fully disclosing it and offering it to the corporation for formal rejection. The court rejects prior standards like the 'line of business' test as conceptually difficult and unpredictable. Instead, the court adopts the American Law Institute's (ALI) test, which provides a clearer, disclosure-oriented framework. This approach prioritizes the fiduciary's duty of loyalty by establishing a strict procedural requirement: full disclosure of the opportunity to the corporation is an 'absolute condition precedent' to the fiduciary taking it for personal gain. If the fiduciary fails to offer the opportunity, they cannot later defend their actions by arguing that the taking was fair to the corporation. The case is remanded for the trial court to apply this newly adopted legal standard.
Analysis:
This decision establishes a new, clear, and stringent standard in Maine for the corporate opportunity doctrine by adopting the ALI's disclosure-first approach. It shifts the focus from vague, fact-intensive inquiries like whether an opportunity was in the corporation's 'line of business' or whether the corporation was financially able to pursue it. The new rule provides a predictable 'safe harbor' for fiduciaries who properly disclose opportunities, while strongly deterring self-dealing by making non-disclosure a near per se breach. This holding significantly strengthens the duty of loyalty and will require corporate officers and directors in Maine to be extremely cautious and transparent when personal business interests intersect with their corporate roles.
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