673 A.2d 148 (Del. 1996)
Robert F. Broz served as president and sole stockholder of RFB Cellular, Inc. (RFBC), which held the Michigan-4 cellular license, and as an outside director of Cellular Information Systems, Inc. (CIS), a publicly held Delaware corporation and competitor in the cellular telephone business.1 CIS had recently emerged from Chapter 11 bankruptcy proceedings in 1994, during which it divested fifteen cellular license systems and entered a loan agreement restricting new acquisitions and debt.2
In May 1994, Mackinac Cellular Corp. sought to sell the adjacent Michigan-2 license through broker Daniels & Associates, which contacted Broz regarding RFBC's possible acquisition.3 CIS was not offered the license because Daniels viewed it as not viable due to CIS's financial condition.4 Broz later signed a confidentiality agreement at the request of Mackinac, and received the offering materials pertaining to Michigan-2.5
On June 13, 1994, Broz discussed the opportunity with CIS CEO Richard Treibick, who stated CIS was not interested.6 Similar responses came from directors Peter Schiff and Stanley Bloch.7 Meanwhile, PriCellular, Inc. pursued acquisition of CIS, entering share purchase agreements with six directors in June 1994 and launching a tender offer in August 1994 at $2.00 per share, with closing delayed due to financing issues until November 23, 1994.8
Broz submitted written offers to Mackinac for the purchase of Michigan-2 on August 6, September 6 and September 21, 1994.9 On November 14, 1994, RFBC agreed to purchase Michigan-2 for $7.2 million.10 PriCellular closed its tender offer nine days later, replaced the CIS board, and on March 2, 1995, CIS sued Broz and RFBC in the Court of Chancery.11 After trial, the Court of Chancery imposed a constructive trust on the agreement to purchase Michigan-2 and directed that the right to purchase the license be transferred to CIS.12
Broz and RFBC appealed the judgment to the Supreme Court of Delaware.13
Whether a corporate director who learns of a business opportunity in his individual capacity must formally present that opportunity to the corporation's board of directors before pursuing it himself?14
Under Delaware law the corporate opportunity doctrine supplies guidelines rather than a rigid command that a director must always make formal presentation to the board.15 A director may appropriate an opportunity that reaches him in his individual capacity when the corporation lacks financial ability, holds no interest or expectancy, and would face no conflict, although presentation to the board functions as a safe harbor that eliminates later second-guessing.16
No. Robert F. Broz received the Michigan-2 opportunity through Daniels & Associates contacting RFBC, his wholly owned company, rather than through any information or introduction tied to his service on the CIS board.17 CIS had just emerged from Chapter 11 with a restrictive loan agreement that barred new acquisitions and additional debt without creditor consent. Broz spoke directly with CEO Richard Treibick on June 13, 1994, and Treibick told him CIS had no interest; directors Peter Schiff and Stanley Bloch gave the same response when later consulted.18 Every member of the CIS board later testified that the company would not have pursued the license even if asked.19
The Supreme Court of Delaware therefore held that formal presentation was unnecessary once the undisputed facts showed CIS possessed neither the inclination nor the capacity to exploit Michigan-2.20 Requiring ritualistic presentation in such circumstances would convert a protective safe harbor into an inflexible prerequisite never imposed by prior precedent.21
Broz did not breach any fiduciary duty by failing to make formal presentation of the Michigan-2 opportunity to the CIS board before acquiring it for RFBC.22
Whether a director of a target corporation must consider the interests and plans of a third party that is in the process of acquiring the corporation when determining whether to pursue a business opportunity?23
A director's right to appropriate an opportunity depends on the circumstances existing at the time the opportunity is presented, without regard to subsequent events.24 Speculative future alignment between the target and a potential acquirer does not create a present duty to consider the acquirer's plans.25
No. At the moment Broz decided to purchase Michigan-2, PriCellular had not yet closed its tender offer and therefore owned no equity interest in CIS.26 PriCellular's financing remained uncertain, with repeated delays pushing closing from September 16 to November 23, 1994.27 Broz was entitled to evaluate the opportunity against CIS's actual financial condition and stated lack of interest rather than against contingent post-acquisition plans that might or might not materialize.28 The Court of Chancery erred by attributing PriCellular's later interest backward in time and by requiring Broz to treat that interest as already merged with CIS's own.29
Broz was not required to consider PriCellular's prospective plans for CIS when deciding whether to acquire the Michigan-2 license.30
Whether a corporation has a cognizable interest or expectancy in a business opportunity when it is actively divesting similar assets and its board members have expressed no interest in the opportunity?31
No. CIS had sold fifteen cellular license systems during its bankruptcy reorganization and had contracted to sell four more in May 1994, leaving it with only five licenses, none in the Midwest.34 Its articulated business plan at the time called for liquidation of holdings rather than new acquisitions.35 Every CIS director testified that the company would not have wanted Michigan-2 even absent its financial constraints.36 These facts eliminated any cognizable interest or expectancy on the part of CIS at the time the opportunity was presented to Broz.37
CIS possessed no interest or expectancy in the Michigan-2 opportunity that would support a claim of usurpation.38
Whether the financial ability of a potential acquirer of the corporation can be attributed to the corporation for purposes of assessing its capacity to pursue an opportunity prior to the consummation of the acquisition?39
No. CIS remained subject to its post-bankruptcy loan covenants that prohibited new debt and acquisitions without creditor approval.42 PriCellular had not yet acquired CIS and its own financing was still in doubt when Broz acted.43 The Court of Chancery incorrectly assumed that PriCellular could or would waive CIS's restrictions before any acquisition closed.44 Broz was required to assess only the facts as they existed when the opportunity was presented, not hypothetical future waivers by a non-owner.45
The financial capacity of PriCellular could not be attributed to CIS prior to the closing of the tender offer, and CIS therefore lacked the ability to pursue Michigan-2.46