FARBER v. SERVAN LAND COMPANY, INC.
393 F.Supp. 633 (S.D. Fla. 1974)
ROETTGER, DISTRICT JUDGE.
[A minority shareholder brought suit against certain directors and majority shareholders alleging that they
breached their fiduciary duty by purchasing real estate adjacent to a golf course owned by the corporation. The golf course and the adjoining acreage were later sold as a package to outside investors.]
Both as directors and majority stockholders of Servan Land Company, defendants Seriani and Savin stood in a
fiduciary relationship to the corporation and to the minority shareholders as beneficiaries and by virtue of this position, defendants have the burden of proving fairness and good faith in their dealings with the corporation. As a fiduciary, an officer, director or dominant shareholder cannot use his power for his personal advantage to the detriment of the stockholders.
This court in no way takes lightly the principle that a director has an obligation to his corporation of "absolute and most scrupulous good faith." It would be easy to move from such a pious pronouncement to entering a decree in favor of plaintiff but sitting as a court of equity, this court cannot do so.
Plaintiff invokes the court's equitable powers by seeking restitution and an accounting to remedy the claimed breach of fiduciary duty occasioned by defendants' appropriation of a corporate opportunity and wrongful allocation of purchase price. Plaintiff urges that Perlman v. Feldman, 219 F.2d 173 (2nd Cir. 1955) compels a decision in his favor so that the profit personally enjoyed by defendants Seriani and
Savin on the sale of the 160 acres adjacent to the corporate property be considered a corporate asset and
distributed among the shareholders.
In Perlman v. Feldman the majority stockholders, in selling their controlling interest in the corporation had also sold a corporate asset-the ability to control the product. The consideration received for the sale of corporate stock included the value of the stockholders' controlling interest in the corporation which the court of appeals found to be a corporate asset. The court of appeals, in approving the intervention of equity, found that the sale of stock for excessive consideration directly harmed the corporate interests and constituted a breach of fiduciary duty.
Although this court has determined that defendants Seriani and Savin should have offered the 160 acres to the corporation before purchasing the property for themselves, the purchase of this property worked to the distinct advantage of the corporation and not to its detriment because it enhanced the value of the major corporate asset- the golf course. In fact, unlike Perlman where the sale of the stock for excessive consideration harmed the corporation, Servan Land Company and its stockholders, Farber included, profited from the joint sales of the 160 acres and the golf course, not only because of the increased value of the golf course but because of the defendants' overvaluation of the corporate land to the detriment of the defendants' individual land.
This case is in marked contrast to other Florida cases where courts have seen fit to invoke equitable powers and impress a trust on individual property. In Newspaper journal Corp. v. Gore, 2 So.2d 741 (1941) the corporate officer purchased land of the "utmost importance" to the corporation-the very land on which the property of the corporation was situated-and thereafter rented the property back to the corporation at an increased rental! Not only did the increased rental fee charged by the individual corporate officers to the corporation directly harm the corporation, but the acquisition of both tracts of land by the corporation, which could have financed the purchases, would have been valuable in carrying out the business of the corporation.
Where there is a duty on the part of officers to acquire property for the corporation and in violation of the obligation they purchase it individually, as in Gore Newspapers, Florida law is established that the individuals cannot retain the benefit of their self-serving actions. Similarly, in Pan American
Trading & Trapping v. Crown Paint, 99 So.2d 705 (Fia.1957) although the land might not have been of the utmost importance to the corporation's welfare as in Gore the evidence established that the land was to be acquired as a site for expansion of corporate operations, a valid and significant corporate purpose of the corporation. The equitable powers of the court were properly invoked to impress a trust upon the property purchased by the individual officer in his own name instead of for the corporation.
Not only did the corporation actually profit from the personal actions of Seriani and Savin, but the 160 acres did not constitute a corporate opportunity nor was its acquisition adverse to the interests of the corporation. The mere fact that the land was adjacent to the corporate land in itself does not support a conclusion that therefore the acreage was a corporate opportunity. The property had no substantial relation to the corporation's primary purpose of operating a golf course and the individual purpose was not antagonistic to any significant corporate purpose and thus the facts do not fall within the general proposition that an officer of a corporation cannot acquire title to or an interest in property prejudicial to the corporation.
Plaintiff seeks for himself and, however involuntarily, for the other stockholders the results of Seriani and Savin's risk in purchasing the property. The argument that a corporation does not have sufficient funds to undertake the venture will not normally absolve fiduciaries of accountability for profiting from a corporate opportunity. In Irving Trust Company v. Deutsch, 73 F.2d 121 (2nd Cir. 1934) the court held that directors could not take over a corporate contract for the purchase of patent rights essential to a corporate purpose for their own profit by a claim of corporate financial inability and thereby divert corporate gains from the transaction. However, not only might Servan Land Company have been financially unable to purchase the 160 acres, but less than a year before the purchase by Seriani and Savin, the directors and stockholders declined to pursue the possibility of purchasing this very same land. . . .
The court concludes the 160 acres was not a corporate opportunity requiring that defendants must account for
their profit on the risk they, but not the corporation eleven months earlier, were willing to take.
In addition, the court concludes that defendants Seriani and Savin have satisfactorily sustained the burden of explaining this transaction and establishing its propriety because of the benefit to the corporation by their holding the abutting property and being willing to aggregate it with the corporate property at the time of sale. It must be noted that the sale of the corporate property had been contemplated by the stockholders for some years.
judgment is hereby entered for defendants.