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Allied Management, Inc. v. Maybaum

A-4056-04T2 (N.J. Super. App. Div. 2006) (Unpublished)

CORPORATIONS; CORPORATE OPPORTUNITY—A corporate officer in name only does not have a fiduciary obligation to avoid diverting what would otherwise be a corporate opportunity.

A man worked for his father-in-law as a vice president in his father-in-law’s companies. The father-in-law’s companies owned and operated liquor stores and donuts franchises in New Jersey. The son-in-law, whose title was vice president, performed bookkeeping and office work for the companies. Eventually, his responsibilities grew and he was permitted to operate two liquor stores and assist in locating investment and retail properties. The son-in-law then began having marital problems, and his father-in-law curbed his responsibilities, cut his salary, and took away his desk and computer. The son-in-law tendered his resignation. He then contacted a college friend and made an offer to purchase a building in New York to operate part as a liquor store and to lease the other portion. The offer to the seller listed his association with his father-in-law’s company. The man then entered into a contract to purchase the building, which made no mention of his father-in-law’s companies and none of the companies’ financial documents were requested by the seller in connection with the transaction.

After the closing, the son-in-law and his partner flipped the property when an adjacent car dealership made a lease-purchase offer. The father-in-law became aware of the transaction during his daughter’s divorce case and sued his son-in-law for diverting a corporate business opportunity to which his companies were entitled. He sought, as damages, the entire profit his son-in-law received from the sale of the New York property. Following a trial, the lower court noted the five questions to be asked when ruling on a claimed diversion of a corporate opportunity: (1) was the opportunity presented to the corporation, (2) was the company financially able to undertake the opportunity, (3) was the opportunity in line with the company’s business practice, (4) was it an opportunity in which the company had an interest or reasonable expectancy, and (5) did the corporate officer’s embracing the opportunity conflict with the company’s interests? The lower court found that the father-in-law only established one of the necessary elements, that the companies had the financial ability to acquire the New York properties. It therefore found in favor of the son-in-law. The father-in-law appealed, arguing that the lower court overread the requirements, but the Appellate Division affirmed. It found that the son-in-law was a corporate officer in name only and that his responsibilities were more clerical in nature. It also found that the son-in-law did not look at the New York property until he was effectively terminated. Finally, the Court noted that owning and operating a liquor store in New York was not in line with the company’s business, as none of its stores were located outside of New Jersey.

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