Duty of Loyalty. Mackinac Cellular Corp offered to sell Robert Broz a license to operate a cellular phone system in Michigan. Broz was a director of Cellular Information Systems, Inc (CIS). CIS, as a result of bankruptcy proceedings, was in the process

Question

of selling its cellular holdings. Broz did not formally present the opportunity to the CIS board, but he told some of the firm's officers and directors, who replied that CIS was not interested. At the time, PriCellular, Inc, a firm that wanted the Michigan license, was attempting to buy CIS. Without telling PriCellular, Broz bought the license himself. After PriCellular took over CIS, the company filed a suit in a Delaware state court against Broz, alleging that he had usurped a corporate opportunity. Has Broz done anything wrong? Discuss.

Answer 1

Duty of loyalty
The Delaware state trial court held that Broz breached his fiduciary duty because he failed to present to the entire CIS board the opportunity to buy the Michigan license. On appeal, the Delaware Supreme Court reversed. The state supreme court pointed out first that "Broz became aware of the [license] opportunity in his individual and not his corporate capacity." Also, the opportunity was within CIS's business, but the company was not interested in it because, as a result of the bankruptcy proceedings, "CIS was actively engaged in the process of divesting its cellular holdings." Broz "took care not to usurp any opportunity which CIS was willing and able to pursue." As for PriCellular, Broz was nor required to consider its interests because, before PriCellular acquired CIS, Broz owed it no fiduciary duty.