Farber v. Servan Land Co., Inc.

• Decision Date: 30 November 1981
• Docket Number: No. 79-4014,79-4014
• Citation: 662 F.2d 371
• Parties: Jack FARBER, personally and as a shareholder of Servan Land Corporation, Inc., on behalf of the Corporation, Plaintiff-Appellant, v. SERVAN LAND COMPANY, INC., Charles S. Serianni and A. I. Savin, Defendants-Appellees. . Unit B *
• Court: U.S. Court of Appeals — Fifth Circuit

Page 371

662 F.2d 371

Jack FARBER, personally and as a shareholder of Servan Land Corporation, Inc., on behalf of the Corporation Plaintiff-Appellant, v. SERVAN LAND COMPANY, INC., Charles S. Serianni and A. I Savin, Defendants-Appellees.

No. 79-4014.

United States Court of Appeals, Fifth Circuit.

Unit B ^*

Nov. 30, 1981.

Smathers & Thompson, Cromwell A. Anderson, Keith E. Hope, Miami, Fla., for plaintiff-appellant.

Horton & Perse, Mallory H. Horton, Starr W. Horton, Miami, Fla., for defendants-appellees.

On Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT, HATCHETT and THOMAS A. CLARK, Circuit Judges.

TJOFLAT, Circuit Judge:

This is the second appeal of a stockholder's derivative suit against two corporate directors for preemption of a corporate opportunity. We find that the directors violated their fiduciary duties to the corporation and that they are liable for damages. We remand the case to the district court so that damages may be assessed.

I

In 1959, Charles Serianni, a Broward County, Florida, businessman, initiated a plan to build and operate a golf course and country club near Ft. Lauderdale. With the assistance of several other investors he formed a corporation, the Servan Land Company, Inc. (the corporation), which was to own and operate the enterprise. The corporation acquired 160 acres of land on which to build the course. Shortly thereafter it acquired from James Farquhar twenty additional acres abutting the golf course, to be used as a dump site for top soil and as a nursery.

Serianni held 180 shares of the corporation's stock and served as President of the corporation throughout its existence. A. I. Savin, a resident of Connecticut, owned 2161/2 shares of stock, and served as the corporation's Vice President. There were eight other stockholders, including Jack Farber, the plaintiff in this action. Farber owned sixty shares.

At one point, the corporation sold four of the twenty acres it had acquired from Mr. Farquhar to BD&L Corporation, which built a sixty-eight-unit lodge on the land. When BD&L was unable to meet its obligations, Servan Land bought the land and lodge, and subsequently held and operated it through a wholly-owned subsidiary.

On several occasions the directors and stockholders discussed the possibility of acquiring more land abutting the golf course, but the corporation took no action. Then, at the 1968 annual stockholders' meeting, Servan Land Company director and stockholder Hamilton Forman informed his associates that James Farquhar was willing to sell 160 acres of abutting land to the corporation. This land was suitable for use as an additional golf course. At the time he made the statement, the stockholders were discussing refinancing the mortgage on the country club in order to obtain funds to redeem the corporation's preferred stock and pay debts owed to several stockholders. Forman suggested that the proceeds the stockholders received from the redemption could be used to buy additional stock in the corporation, thus generating the funds necessary for the corporation to acquire the Farquhar property. According to the corporate minutes, "(t)he stockholders seemed to feel that this possibility should certainly be investigated and would be made financially feasible by the refinancing...." Minutes of the Annual Joint Meeting of the Board and Stockholders of Servan Land Company, April 1, 1968, at 3. The stockholders decided, however, to vote on the refinancing question without an amendment providing for purchase of the property. They passed the motion to refinance.

A few months later, Serianni and Savin met with James Farquhar and negotiated to buy, in their individual capacities, the same 160 acres abutting the golf course that had been discussed at the corporation's annual stockholders' meeting. They closed the transaction in March 1969.

The minutes of the 1969 annual stockholders' meeting, held the following month, indicate no discussion of or reference to Serianni and Savin's purchase. During the following year Farber learned of the purchase from a third party, and at the 1970 annual stockholders' meeting, he inquired about it. Savin and Serianni acknowledged the purchase, but at this point the evidence varies. The official corporate minutes indicate that the stockholders discussed the purchase and found no impropriety, and that "(a) motion to approve this land purchase by Mr. Serianni and Mr. Savin individually was then moved, seconded and approved by everyone at the meeting, except (Mr. Farber's proxy)." Minutes of Special Meeting of the Stockholders of Servan Land Company, Inc., May 9, 1970, at 2. Farber, however, having been at odds with the majority stockholders for some time, had sent a court reporter to the meeting, and the court reporter's transcript reports no motion to ratify Serianni and Savin's purchase.

Three years later, in 1973, Serianni, Savin and the corporation entered into an agreement with a purchaser to sell as a package the corporation's assets and the 160 acres of adjoining land Serianni and Savin had bought; each contract of sale was conditioned upon execution of the other. Of the aggregate sales price, the defendants allocated $5,000,000 to the corporation and $3,353,700 to Savin and Serianni, though this division was not based on any appraisal of the respective properties.

At a special directors' and stockholders' meeting, all the members of the corporation but Farber approved the sale and voted to liquidate Servan Land Company. After the sale was completed Farber brought a stockholders' derivative suit in the district court, based on diversity jurisdiction, alleging that Savin and Serianni had preempted a corporate opportunity by acquiring the 160 acres adjacent to the golf course. He also sought appointment of an appraiser to determine the proper allocation of the purchase price.

The district court, sitting without a jury, announced its findings of fact and conclusions of law at the end of trial. ¹ It found, inter alia, that the initial investors had created the golf course and country club "as a bit of an ego trip and partially out of vanity considerations," Record Excerpts at 60, because they were tired of waiting for starting times at other golf courses, and wanted a course of their own when they were in the Ft. Lauderdale area. The court found that Serianni had been the "driving force," id., of the venture from its inception, though apparently this was at least partly due to the lack of interest of the other stockholders or because most of the others lived in distant states. The court then noted that Serianni had engaged in "questionable tactic(s)" in running the corporation, id. at 61, but that "this golf course was not operated with an eye to investment in the sense that many of the real estate promotional ventures have been developed in this country." Id. at 62. The court continued:

Mr. Forman's testimony is persuasive, that the golf course should not have been built without acquiring all the perimeter land. It is persuasive in the sense of the business aspects of the development; but it is also supportive of the Court's earlier findings that this matter was not originally designed exclusively as a real estate venture but had other goals which have been previously indicated.

The Court finds that the possibility of real estate development was certainly present. For example, Mr. Forman testified, via deposition, that scarcely ever a meeting of the stockholders occurred without discussing the acquiring of additional property of Mr. Farquhar.

Mr. Farber, the plaintiff, minority stockholder, became somewhat disenchanted early in the operation, primarily because he felt the operation was not being conducted in the soundest manner possible from a business point of view; and that may have been true. Even if it weren't, that may have been consistent with the whole idea of this operation.

Id. at 62-3. The court then noted that the corporation had acquired an extra twenty acres abutting the golf course from Mr. Farquhar in 1960, and, subsequently, had acquired and operated the lodge. It then acknowledged the stockholders' interest in Mr. Farquhar's 160 acres at the 1968 meeting ² but noted that they had not taken further action to obtain the land.

Following these observations, the court stated:

The Court finds that it was incumbent upon Mr. Serianni and Mr. Savin at that time, in their position, and under the circumstances, to have called a special meeting of the stockholders and to have advised them that they had this possibility of purchase and give the stockholders a chance to take corporate action to acquire the land or to defer in favor of Mr. Serianni and Mr. Savin to make an individual purchase.

Id. at 65. ³

It continued:

The Court might observe that there is little doubt but what the stockholders, with the exception of Mr. Farber, would have been delighted to have deferred to Mr. Serianni and Mr. Savin and wished them well.

The Court further finds that there is an obvious benefit to the corporation by the fact that Mr. Serianni and Mr. Savin did purchase the 160 acres, and at the time the corporate assets were sold, the 160 acres in question was available as an aggregate of assets and real estate, so that the entire package was considerably more attractive to purchasers.

Id. at 65-66. Finally, the court found that Farber was entitled to an appraisal to determine whether the corporation should have received a larger portion of the total sale price of the properties than the $5 million allocated by Serianni and Savin. It withheld final judgment pending the completion of the appraisal. From the dialogue between the court and counsel following the court's findings of fact it is clear that the court considered the question of damages to ride entirely on the results of the appraisal as requested in Count II of the complaint, and not on the existence of a breach...