Northeast Harbor Golf Club, Inc. v. Harris

Northeast Harbor Golf Club, Inc. v. Harris

61 A.2d 11146 (1995) 

Facts. Nancy Harris was president of the plaintiff corporation, Northeast Harbor Golf Club, Inc. from 1971 to 1990 when she was forced to resign. Over time, Nancy purchased parcels of land surrounding the golf course in her name and informed the directors and other officers at the annual meetings. In 1988, Harris began the process of obtaining a five-lot subdivision and NE brought a suit for breach of fiduciary duty to act in the best interest of the corporation. Main Issue: Corporate Opportunity. NE sought an injunction to prevent development and also to impose a constructive trust on the property for the benefit of the Club. The DC found Harris had not usurped the corporate opportunity b/c her good faith acquisition of real estate was not in the Club’s line of business and that the club lacked financial ability to purchase that real estate. 

Issue. Did the DC err in finding that Harris did not breach her fiduciary duty as president of the Club by purchasing and developing the property around the golf course?

Held. Yes, the trial court’s “line of business test” was erroneous and should’ve followed ALI §5.05 standards, so it was vacated and remanded. Harris should’ve fully disclosed to the board and the club must have rejected it properly. Because Harris failed to offer the opportunity at all, she couldn’t’ defend her case.

 

 

Alderstein v. Wertheimer

Alderstein v. Wertheimer

Del. Ct. Ch.

2002 WL 205865

 

Facts. Alderstein, who was former Chairman and CEO of SpectruMedix Corp. sued the company and the current directors. Prior to the suit on July 9, 2001, a meeting was held in which a board majority issued to a Reich Partnership a number of shares of a new class of supervoting preferred stock that conveyed to the Reich Partnership a majority of the voting power of the Company’s stock. Basically Alderstein sued Wertheimer and Mencher because they did not give notice of a meeting that would result in his removal from his CEO position.

 

Rule. Company’s insolvency doesn’t justify not giving advance notice of a meeting’s agenda.

 

Issue: Did SpectruMedix’s dire financial circumstance and actual or impending insolvency justify directors’ actions in not giving advance notice of meeting to prevent controlling shareholder from exercising rights?

 

Held. No. SpecturMedix’s dire financial situation and impending insolvency does not justify Wertheimer’s and Mencher’s actions. It is such times of dire consequence when the established rules of good board conduct are the most important. Directors cannot accomplish their fiduciary duties to a corporations though trickery and deceit. 

What is an Accredited Investor?

Accredited Investors

Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may sell its securities to what are known as “accredited investors.”

The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:

a bank, insurance company, registered investment company, business development company, or small business investment company;

an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;

a charitable organization, corporation, or partnership with assets exceeding $5 million;

a director, executive officer, or general partner of the company selling the securities;

a business in which all the equity owners are accredited investors;

a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;

a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;

or
a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

Meehan v. Shaughnessy

Meehan v. Shaughnesy

404 Mass. 419, 535 N.E.2d 1255 (1989)

 

Facts. Plaintiffs, Meehan and Boyle were senior partners at the Defendant’s firm, Parker Coulter. Meehan and Boyle had a 10.8% share of the law firm. The firm said: okay now you’re leaving, there were procedures for the removal of clients. The Plaintiffs decided to leave, they gave thirty days notice (instead of the agreed upon three months – but this was waived by a partner in the firm), took other attorneys from the firm with them . They recruited Meehan, Boyle, Cohen, Schafer, Black, and Fitzgerald to start their own firm. The letters to the clients was on the Parker Coulter Letterhead. The partnership agreement provided rights for the parties after dissolution that resolved the allocation of business immediately. Departing attorneys were entitled to receive their share of their capital contribution and net income currently entitled, as well as a right to a portion of the firm’s unfinished business. The main point of contention was the stealing of clients. They took 142 of the 350 contingent fee cases pending at Parker Coulter.

 

Issue. The issue is whether the conduct of Plaintiffs violated a fiduciary duty owed to the remaining partners of the firm.

 

Holding. Lawyers can leave, clients can leave. You should send out a joint letter or an approved letter. Relationships in the profession is very important. Why burn all these bridges?

The P’s conduct regarding their secret planning for their new law firm was not necessarily unacceptable. P’s would have to engage in some initial planning for the new firm to ensure that they would have the necessary resources to start their own firm. P’s conduct went too far concerning the retentions of all their former clients. P’s left D at a disadvantage when they denied they were leaving and when they secured clients while D’s were initially trying to plan for P’s departure. P violated the partnership agreement by violating their fiduciary duty, but they will only held responsible for damages arising from their conduct. P’s are entitled to their share of capital contribution and compensation.

 

Examine: 403(c)

Covalt v. High

Covalt v. High
N.M. Ct. App. 675 P.2d 999 (1983)

Facts. Covalt and High had an oral agreement for a formation of a partnership that dealt with real estate. They built an office and warehouse building which was leased to CSI, a corporation in which Covalt and High were the sole shareholders. After Covalt resigned his corporate position, he wrote High to demand that the monthly rent for the partnership real estate leased to CSI be increased. High didn’t agree and litigation ensued. Covalt filed the action, seeking the sale of property in lieu of partition, an accounting, and both actual and punitive damages. The DC awarded damages to Covalt, and High appealed.

Issue. Except with express language, do all partners have equal rights in the management and conduct of the business of the partnership?

Holding. They do, except where partners have expressly agreed to the contrary, all general partners have equal rights in the management and conduct of the business. One partner may not recover damages for the failure of the copartner to acquiesce in a demand to negotiate and execute an increase in the monthly rents of partnership property. Thus, there was no breach of fiduciary duty.