## Facts

- Energy Resources Corporation, Inc. (ERCO) conducted energy and environmental research, including fluidized-bed combustion technology.
- James H. Porter served as ERCO’s vice president and chief scientist, directing ERCO’s work in fluidized-bed combustion.
- Porter met with Howard University faculty to pursue a U.S. Department of Energy (DOE) grant involving fluidized-bed combustion; the plan was for Howard to apply as prime grantee with ERCO as subcontractor.
- A Howard faculty member objected to ERCO serving as subcontractor, expressing concern that Howard would be used as a “front” for funding meant to benefit minorities.
- DOE indicated that Porter had to be involved as subcontractor in some capacity, regardless of his affiliation; Porter and the Howard participants concluded Porter would form a new company to serve as subcontractor.
- Porter formed Energy & Environmental Engineering, Inc. (EEE) to take the subcontract position in place of ERCO.
- When asked by ERCO’s president about the proposal, Porter stated only that ERCO would not get the subcontract and did not disclose the plan for his new company to receive it.
- After DOE awarded the grant to Howard with EEE as subcontractor, Porter resigned from ERCO and gave a reason unrelated to the DOE subcontract; ERCO later discovered EEE had taken the subcontract tied to the work Porter had been developing at ERCO.
- ERCO sued, alleging Porter breached his fiduciary duty by diverting a corporate opportunity.

## Issues

1. Whether a corporate officer breaches fiduciary duty by taking for himself a business opportunity arising from the corporation’s work and contacts, where a third party expressed unwillingness to contract with the corporation.
2. Whether a third party’s refusal to deal with the corporation automatically defeats a corporate-opportunity claim when the officer failed to make full disclosure and may have affected the third party’s position.

## Decision

- The Massachusetts Appeals Court reversed the judgment for Porter.
- The court held that Porter breached his fiduciary duty by diverting to himself (through EEE) an opportunity connected to ERCO’s line of business and pursued through his corporate role.
- The court rejected the view that Howard’s unwillingness to deal with ERCO automatically eliminated the existence of a corporate opportunity.
- The case was remanded for further proceedings consistent with the finding of breach (including potential equitable or monetary relief).

## Legal Principles

- Corporate officers owe the corporation a strict duty of loyalty and “utmost good faith,” including a duty of full disclosure of material facts concerning business opportunities connected to the corporation’s activities.
- An officer may not secretly appropriate for personal benefit an opportunity that is in the corporation’s line of business and in which the corporation has an interest or reasonable expectancy, particularly when the opportunity arises from the officer’s corporate position and work.
- A third party’s expressed reluctance or refusal to deal with the corporation does not, by itself, negate a corporate opportunity where the officer did not fully disclose the facts and the corporation was not given a fair chance to respond or attempt to preserve the deal.

## Conclusion

The court held that ERCO’s chief scientist breached his fiduciary duty by concealing and diverting a DOE-related subcontract, and that a third party’s unwillingness to contract with the corporation did not bar liability where the officer failed to make full disclosure and the opportunity stemmed from his corporate role.


Energy Res. Corp. v. Porter, 14 Mass. App. Ct. 296, 438 N.E.2d 391 (1982)