Understanding the “Corporate Opportunity” Doctrine

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The Corporate Opportunity Doctrine has generally been described as a corollary of the undivided loyalty rule which prevents a director from appropriating an opportunity from the corporation.   Ohio uses the “line of business” test to identify corporate opportunities which directors or officers may not appropriate themselves.

The elements of a cause of action under the corporate opportunities doctrine are: (1) Defendants were officers and/or directors of the corporation; (2) In such capacity, defendant acquired knowledge of an investment or business opportunity; (3) The opportunity was in the line of the corporation’s business; and (4) The opportunity would be advantageous to the corporation and the corporation is able to accept the opportunity.
Officers and directors of a corporation, who acquire information in their fiduciary capacity of a business opportunity in the line of the corporation’s business, cannot appropriate the opportunity for themselves as individuals if the opportunity would be advantageous to the corporation and the corporation is financially able to accept the opportunity.   If a corporate officer or director misappropriates a corporate opportunity for their own gain, a court may require that the opportunity be transferred to the corporation and account for it for their inequitable profits.

Once the plaintiff presents evidence that a corporate opportunity was usurped, the defendant bears the burden of proving that the corporation was unable to take advantage of the corporate opportunity because of the wishes of the customer, financial ability, or other reason.   This burden shift occurs for two reasons.  First, the fiduciary has been involved with both the customer and the corporation and is in a better position to demonstrate why the customer is unwilling to deal with the corporation.  Second, the fiduciary has a primary obligation to use his best efforts to secure the opportunity for the corporation, and he must demonstrate that he has used these efforts before he may usurp the opportunity.

The issue of whether a director misappropriated a corporate opportunity seems to turn on either an issue of timing or an issue of availability.  First, when did the opportunity arise and when did the director first begin to pursue the opportunity.  If either of those things happened before resigning as a director, then a corporate opportunity was usurped.  Second, the director may demonstrate that the opportunity was not available to the corporation because of the client’s wishes, financial ability of the corporation to act on the opportunity, or because the opportunity falls outside of the scope of the corporation’s line of business.

admin @ August 28, 2009