## Facts

- Lillian N. Burg, a California citizen, owned one-third of Darand Realty Corp., a New York corporation formed in 1953 to own and operate low-rent buildings in Brooklyn.
- Max Horn and George Horn, New York citizens, owned the remaining two-thirds of Darand, served as directors, and managed Darand’s properties; Louis Burg handled accounting and tax matters.
- Darand was modestly capitalized and purchased several low-rent buildings between 1953 and 1963.
- During the same period, the Horns, individually or through wholly owned corporations, acquired nine similar Brooklyn properties outside Darand.
- Burg claimed she expected the Horns to offer Darand any low-rent Brooklyn properties they found, but there was no discussion or agreement requiring this.
- Some acquisitions by the Horns were financed in part through loans from Darand and from Louis Burg personally.
- Burg filed a diversity shareholder-derivative action seeking an accounting and a constructive trust over the nine properties as allegedly usurped corporate opportunities.

## Issues

1. Under New York law, whether the nine properties acquired by the Horns were corporate opportunities of Darand such that acquisition for personal benefit breached fiduciary duties of loyalty.
2. What limits New York law places on directors and majority shareholders in pursuing opportunities potentially advantageous to the corporation.

## Decision

- The Second Circuit affirmed the district court.
- The court held the nine properties were not corporate opportunities of Darand because Darand lacked an interest or tangible expectancy in the specific properties.
- The court declined to impose a constructive trust over the nine properties.
- The court left intact narrower relief requiring accounting for specific rent receipts and transactions involving use of Darand’s funds.

## Legal Principles

- Under New York law, directors and controlling shareholders are barred from taking an opportunity only when the corporation has an “interest or tangible expectancy” in the specific opportunity.
- A generalized overlap with the corporation’s field of activity is insufficient, by itself, to establish usurpation of a corporate opportunity.
- In assessing fiduciary breach, courts examine case-specific circumstances, including any explicit or implied agreement that opportunities be offered to the corporation.
- Use of corporate funds to assist a fiduciary’s separate venture may warrant accounting and reimbursement, but does not necessarily convert the entire venture into a corporate opportunity requiring a constructive trust.

## Conclusion

The court held that, absent an agreement to channel all comparable deals to the corporation or a concrete corporate expectancy in the particular properties, directors and majority shareholders did not breach their duty of loyalty by purchasing similar properties for themselves, though misuse of corporate funds could be addressed through accounting remedies.


Burg v. Horn, 380 F.2d 897 (2d Cir. 1967)