Morad v. Coupounas

• Decision Date: 21 July 1978
• Parties: Joseph F. MORAD et al. v. George D. COUPOUNAS, etc., et al. S.C. 2818.
• Court: Alabama Supreme Court

Page 6

361 So.2d 6

Joseph F. MORAD et al. v. George D. COUPOUNAS, etc., et al.

S.C. 2818.

Supreme Court of Alabama.

July 21, 1978.

Lawrence B. Clark and Virginia A. Emerson, Birmingham, for appellants.

Michael L. Edwards and Thomas J. Gallo, Birmingham, for appellees.

FAULKNER, Justice.

This is an appeal by Med-Lab, Inc. and its stockholders from a final decree finding them liable for misappropriation of the corporate opportunity of Bio-Lab, Inc., and ordering them to offer 30% Of the stock of Med-Lab to Coupounas. We affirm the order that Med-Lab is liable to Bio-Lab, but reverse and remand as to the remedy ordered by the trial court.

Bio-Lab, Inc. was formed in 1972 by Joseph Morad, Joseph Thomson, George Coupounas, and Dr. June Shaw for the purpose of establishing a plasmapheresis business. In this business, red blood cells are separated from the plasma of a paid blood donor and returned to the donor's circulatory system. The plasma is then sold to biological manufacturing companies. Initially, Bio-Lab opened an office in Birmingham with Morad, who had approximately 51/2 years experience in the plasmapheresis business, as president. Coupounas, a resident of Massachusetts, was to handle the books. The trial court specifically found that one of the purposes of the creation of Bio-Lab was to expand its operations by opening new offices in certain specified areas of the state, including Tuscaloosa.

By mid-1973, dissension had arisen among the directors and stockholders of Bio-Lab over Morad's compensation. Testimony and exhibits examined by the trial court indicated that at this same time discussions were held on expansion to Tuscaloosa. In June, 1973 Thomson purchased Dr. Shaw's stock so that the ownership of Bio-Lab was divided as follows: Morad, 42%; Thomson, 28%; Coupounas, 30%. Several months later Coupounas and Dr. Shaw were removed from the board of directors and replaced by Morad's wife, Pamela, and two other individuals.

In February, 1974, Morad, his wife, and Thomson incorporated another plasmapheresis business, Med-Lab, Inc., that began operating in Tuscaloosa in September of 1974. Since that time, Morad has served as president of both Bio-Lab and Med-Lab, working "full-time" for both corporations, according to the corporate tax returns. Both corporations are profitable. Morad's own testimony at trial revealed that Bio-Lab had lost donors to Med-Lab and that the two corporations sold 95% Of their products to the same three biological manufacturing corporations. Morad also testified that he jointly purchases insurance policies and supplies for Bio-Lab and Med-Lab, and uses the car supplied him by Bio-Lab on Med-Lab business. Orders for plasma received by Bio-Lab are sometimes filled by Med-Lab.

In May, 1976, Coupounas, eliminated from any interest in the Tuscaloosa venture, filed suit individually, and for the benefit of Bio-Lab, against Med-Lab, Morad, Morad's wife, and Thomson alleging a breach of fiduciary duty to Bio-Lab in the formation of Med-Lab. The complaint asked that a constructive trust be imposed on Med-Lab in favor of Bio-Lab, or alternatively, that defendants be required to offer Coupounas the same percentage of ownership in Med-Lab as he held in Bio-Lab, i. e., 30%. The trial court, hearing extensive testimony without a jury, rendered judgment for Coupounas and ordered the defendants to offer him 30% Of the stock of Med-Lab.

In Lagarde v. Anniston Lime & Stone Co., 126 Ala. 496, 28 So. 199 (1899), this Court first formulated its doctrine of corporate opportunity. There it was stated:

"It is well settled that directors and other governing members of a corporation are so far agents of the corporation that in their dealings respecting corporate interests, they are subject to the rules which apply generally to persons standing in fiduciary relations and which forbid such persons to secure an advantage for themselves which fidelity to the trust reposed in them would carry to others whose interests they ought to represent.

"(I)n general the legal restrictions which rest upon such officers in their acquisitions are generally limited to property wherein the corporation has an interest already existing, or in which it has an expectancy growing out of an existing right, or to cases where the officers' interference will in some degree balk the corporation in effecting the purposes of its creation."

See also Cox & Perry, Inc. v. Perry, 334 So.2d 867 (Ala.1976). The last restriction in Lagarde, that which prohibits "balking the corporate purpose," is really quite broad in its formulation, although the case has often been described as restrictive. See e. g., Note, Corporate Opportunity, 74 Harv.L.Rev. 765 (1961). We think that Lagarde when properly read establishes responsibilities for the corporate officer or director comparable to those outlined Guth v. Loft, Inc., 23 Del.Ch. 255, 5 A.2d 503 (1939), where the Delaware Supreme Court employed the doctrine of corporate opportunity and observed that it

" . . . demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his duty, not only affirmatively to protect the interests of the corporation committed to his charge, but also to refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his skill and ability might properly bring to it, or to enable it to make in the reasonable and lawful exercise of its powers. The rule that requires an undivided and unselfish loyalty to the corporation demands that there shall be no conflict between duty and self-interest. The occasions for the determination of honesty, good faith and loyal conduct are many and varied, and no hard and fast rule can be formulated. The standard of loyalty is measured by no fixed scale."

Moreover, the Delaware Supreme Court stated in more practical terms what the law demands of corporate officers or directors:

"(I)f there is presented to a corporate officer or director a business...