## Facts

- Cellular Information Systems, Inc. (CIS), a Delaware public company in the cellular business, had recently emerged from Chapter 11 and was financially distressed.
- CIS was divesting cellular licenses and lacked the ability to acquire new licenses without creditor approval.
- Robert F. Broz was a CIS director and also the president and sole shareholder of RFB Cellular, Inc. (RFBC), a CIS competitor.
- A third party, Mackinac Cellular Corp., owned a cellular license for the Michigan-2 Rural Service Area and contacted Broz/RFBC about purchasing it; the license was not offered to CIS.
- Separately, PriCellular was negotiating to acquire CIS and had an option to purchase the same license from Mackinac, subject to being outbid.
- Broz, for RFBC, made a higher offer than PriCellular’s option price, and Mackinac agreed to sell the license to RFBC; PriCellular acquired CIS shortly thereafter.
- Before RFBC acquired the license, Broz informally consulted several CIS directors, who stated CIS was not interested and could not afford the license.
- Broz did not formally present the opportunity to the full CIS board.
- After the acquisition closed, CIS (as acquired by PriCellular) sued Broz and RFBC for breach of fiduciary duty based on alleged usurpation of a corporate opportunity.

## Issues

1. Whether a director usurps a corporate opportunity by acquiring an opportunity for a competing company when the opportunity was offered to the director/competitor and the corporation was financially unable and disinterested.
2. Whether a director of a target corporation owes fiduciary duties requiring consideration of a prospective acquirer’s interests in an opportunity before the acquisition closes.
3. Whether failure to make a formal board presentation, on these facts, constitutes a breach of fiduciary duty under the corporate opportunity doctrine.

## Decision

- The Delaware Supreme Court reversed the Court of Chancery.
- The court held Broz did not breach fiduciary duty and did not usurp a corporate opportunity of CIS by having RFBC acquire the Michigan-2 license.
- The court held Broz owed no fiduciary duty to PriCellular as a prospective acquirer regarding an opportunity arising before the acquisition was consummated.
- The court concluded that, although formal board presentation would have been preferable, the lack of formal presentation did not create liability given CIS’s demonstrated inability and lack of interest and the opportunity’s independent source.

## Legal Principles

- Under Delaware’s corporate opportunity doctrine, relevant considerations include whether the corporation is financially able to exploit the opportunity, whether it is within the corporation’s line of business, whether the corporation has an interest or expectancy in it, and whether taking it would place the fiduciary in conflict with corporate duties.
- An opportunity offered to a director in an individual capacity and independent of the director’s corporate role is less likely to be deemed a corporate opportunity of the corporation.
- No per se rule requires formal presentation of every opportunity to the board; failure to present does not automatically constitute usurpation when objective facts show the corporation lacks both interest and financial capacity.
- A director of a target corporation does not owe fiduciary duties to a potential acquirer concerning opportunities that arise before the acquisition closes.
- Absence of misuse of corporate resources or confidential information, combined with corporate inability and disinterest, supports a finding of no breach.

## Conclusion

The court held that a CIS director did not improperly take a corporate opportunity by acquiring a license for his competing company where CIS was financially unable and disinterested, the opportunity originated outside his CIS role, and he owed no duty to a would-be acquirer before closing.


Broz v. Cellular Info. Sys., Inc., 673 A.2d 148 (Del. 1996)