Rapistan Corp. v. Michaels

Michaels, Tilton and O'Neill were Rapistan Corp. executives who resigned from Rapistan and began working with another holding company aiming to acquire a conveyer manufacturer, Alvey. Once the company was acquired, the executives became executives at Alvey. Plaintiff, Rapistan and its holding company sued on the basis that defendants misappropriated a corporate opportunity and misused confidential information.

If a director or officer is presented with a business opportunity that the corporation can financially undertake, and if the business opportunity is in the nature and in the line of the corporation's business and would be a practical advantage to it and the corporation has a reasonable expectancy in the opportunity, then a director can't seize the opp for himself. The Court also mentions the "Guth corollary," which states that when a business opportunity comes to a corporate officer or director in his individual capacity, and is not essential to the corporation, and the corporation has no interest or expectancy in the opportunity, then the director or officer has not wrongfully embarked the corporation's resources therein. In this case, the court said that there was not a direct or substantial nexus between use of Rapistan assets and the creation, development, and acquisition of the Alvey opportunity.

Fiduciary Duties & Shareholder Litigation | Duty of Loyalty | Expropriation of Corporate Opportunities