A. Teixeira & Co., Inc. v. Texeira

• Decision Date: 11 September 1997
• Docket Number: No. 95-167-A,95-167-A
• Citation: 699 A.2d 1383
• Parties: A. TEIXEIRA & CO., INC. v. Antonio L. TEIXEIRA et al. ppeal.
• Court: Rhode Island Supreme Court

Page 1383

699 A.2d 1383

A. TEIXEIRA & CO., INC. v. Antonio L. TEIXEIRA et al.

No. 95-167-Appeal.

Supreme Court of Rhode Island.

Sept. 11, 1997.

Joel D. Landry and Thomas F. Connors, Providence, for Plaintiff.

Kris Macaruso Marotti and Thomas A. Tarro, III, Warwick, for Defendant.

Before WEISBERGER, C.J., and LEDERBERG, BOURCIER and FLANDERS, JJ.

OPINION

BOURCIER, Justice.

In this matter we consider the corporate opportunity doctrine. The defendants, Antonio L. Teixeira (Antonio) and Armenio Teixeira (Armenio), appeal to this Court from a final judgment of the Superior Court following a jury verdict finding the defendants to have wrongfully taken a corporate opportunity from the plaintiff, A. Teixeira & Co., Inc. The final judgment imposed a constructive trust upon Armenio's shares of stock in a retail liquor store known as Mendon Liquors and awarded punitive damages to the plaintiff corporation in the amount of $20,000. The defendants here on appeal contend that the trial court should have granted directed verdicts ¹ in their favor on the question of whether they had deprived the plaintiff of a corporate opportunity or, in the alternative, the court should have granted their motion for a new trial. The defendants additionally allege error with respect to the court's jury instruction on both the imposition of a constructive trust and punitive damages. We conclude that directed verdicts should have been granted, and we reverse the judgment of the trial court. ² We need not address the alleged jury trial instruction issues.

I The Facts

A. Teixeira Co., Inc. (plaintiff corporation or corporation), is a Rhode Island corporation formed in 1981 by six shareholders: Honorato Custodio, Artur Mota, Joaquim Duarte, Manuel Moitoso, Armenio Teixeira, and Antonio L. Teixeira. After having each made capital contributions of $20,000, the shareholders each received 100 shares of stock in the corporation. As acknowledged by all the shareholders, the corporation was formed for the purpose of acquiring a recently bankrupt retail liquor store known as Pop's Liquors, located in Cumberland, Rhode Island. After raising sufficient capital, the corporation realized its goal by purchasing Pop's Liquors at a public auction as well as then later having its liquor license transferred to the corporation. Shortly thereafter, in February of 1982, Pop's Liquors once again opened its doors for business, this time under the ownership of plaintiff corporation.

In terms of corporate organization and management structure, the trial record indicates that plaintiff corporation was not a model of clarity. According to its articles of incorporation that neglected to indicate that it was a close corporation pursuant to G.L.1956 § 7-1.1-51, it had no board of directors, and Honorato Custodio (Custodio), one of its six shareholders, initially served as the president, vice-president, secretary, and treasurer of the corporation and indeed served in these capacities for all times relevant to this dispute. He also oversaw the day-to-day operation of Pop's Liquors along with his wife, both as salaried employees, and thereby acted, as he described it, as its general manager. At trial, however, Custodio disputed this apparent autocratic managerial status and maintained that all the other shareholders also actively participated from time to time in management decisions. Trial testimony from each of the shareholders bears out Custodio's contention and indicates that each of the shareholders played at least some role in the corporation's management of Pop's Liquors by offering advice on such matters as purchasing items for sale in the liquor store expanding sales and advertising campaigns, and, in general, acting as shareholders would act in a close corporation.

Ownership in the corporation remained straightforward despite one minor adjustment. In April of 1982 Artur Mota (Mota), one of the original shareholders, apparently skeptical of the loyalty of some of his fellow shareholders, offered to sell his stock to the corporation as required pursuant to the preemptive rights provision contained in the corporation's bylaws. After a formal rejection of Mota's offer by the corporation, Mota sold his shares to Joaquim Duarte (Duarte). From that point on, Duarte owned 200 shares, and the remaining four shareholders owned 100 shares each of corporate stock.

The flashpoint for this litigation apparently occurred sometime in early December of 1982. At that time Custodio learned that Mendon Liquors, a retail liquor store located in Cumberland within a few miles of Pop's Liquors, was going to be offered for sale. Custodio told the trial jury that he was extremely excited by the prospect of purchasing this competitor by way of plaintiff corporation and thereby increasing its share of the retail liquor market in the local area. According to Custodio, he first mentioned the news to Antonio, who allegedly seemed lukewarm to the idea of revealing the opportunity to the corporation's other shareholders. Custodio testified that Antonio suggested the idea of utilizing the opportunity for themselves. Despite Antonio's alleged suggestion, however, Custodio called a meeting of the corporation's shareholders and presented to them the idea of purchasing Mendon Liquors. Although the corporate minutes fail to reflect any such meeting, Custodio told the jury that all the shareholders, including Antonio and Armenio, agreed at that meeting that the purchase would be beneficial to the corporation and authorized Custodio as president of the corporation to undertake negotiations with the owners of Mendon Liquors.

Custodio's purchase of Mendon Liquors never materialized, however. His efforts to negotiate such a sale during the time between December 1982 and March 1983 were certainly less than enterprising. His trial testimony indicates that the negotiations never reached a formal or serious stage and that he concluded therefrom that the owners of Mendon Liquors seemed uninterested in his inquiries. Custodio's dawdling efforts on behalf of plaintiff corporation consisted of five or six telephone calls to a Mrs. Cabral, and a short visit with a Mr. Cabral, the owners of Mendon Liquors. According to Custodio, the negotiations were a "real puzzle" because Mrs. Cabral would not return his phone calls with sales terms or a price for the purchase and Mr. Cabral never called him regarding the sale price or terms, leading him to believe that the Cabrals were "stalling" him.

In late spring 1983 Antonio met with Custodio and told him that Mendon Liquors had been purchased earlier by Armenio and two other individuals. The trial evidence before the jury disclosed that Mendon Liquors was not sold until late June 1983 to Act, Inc., a Rhode Island corporation comprising one of plaintiff's shareholders, Armenio, along with his cousin, Caesar Teixeira, and Basil Silva, both nonshareholder third parties.

Believing that the sale of Mendon Liquors to Act, Inc., was, however, somehow initiated by Armenio and constituted a sharp deal, Custodio, Duarte, and Manuel Moitoso filed suit against the three defendants on behalf of plaintiff corporation. They alleged that the purchase of Mendon Liquors was a corporate opportunity that rightfully belonged to plaintiff corporation but that it had been diverted by defendants, one of whom was Armenio, a shareholder in plaintiff corporation. In plaintiff's view, not only did its inability to purchase Mendon Liquors appear to be the direct result of alleged secret negotiations by Armenio and Antonio with the Cabrals but that the imposition of a constructive trust as well as punitive damages was also an appropriate remedy. The trial justice and jury apparently agreed.

On appeal before this Court plaintiff corporation contends that the trial court's final judgment should be affirmed. Alternatively defendants contend that the doctrine of corporate opportunity was improperly applied in this instance. The defendants assert that plaintiff corporation was not financially able to acquire Mendon Liquors and had abandoned its efforts to purchase Mendon Liquors by its less than animated efforts to negotiate with the Cabrals.

II Analysis

The plaintiff's claim is premised on what has come to be known as the doctrine of corporate opportunity. Stated succinctly, this legal doctrine prohibits a corporate fiduciary from diverting a business opportunity away from the corporation and taking it for himself or herself. See Guth v. Loft, Inc., 5 A.2d 503 (Del.1939); Victor Brudney & Robert Charles Clark, A New Look at Corporate Opportunities, 94 Harv. L.Rev. 998 (1981); see also Sladen v. Rowse, 115 R.I. 440, 444, 347 A.2d 409, 412 (1975). To successfully state a claim then, a plaintiff must demonstrate that the defendant was a corporate fiduciary and that he or she diverted a corporate opportunity. In this case we must examine both of these requirements

A. Corporate Fiduciaries

Our first concern, one inadequately addressed by the parties, is the question of whether either Armenio or Antonio as a minority shareholder in a corporation acting as if it were a close corporation was a corporate fiduciary. Corporate officers and directors of any corporate enterprise, public or close, have long been recognized as corporate fiduciaries owing a duty of loyalty to the corporation and its shareholders and thereby prohibited from diverting corporate opportunities to themselves. As the Supreme Court of Delaware explained in a leading case:

"While technically not trustees, they stand in a fiduciary relation to the corporation and its stockholders. A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives, has established a rule that 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...