## Facts

- Servan Land Company, Inc. was formed to own and operate a golf course and country club near Fort Lauderdale, Florida, and acquired 160 acres for that purpose, later adding 20 adjacent acres from James Farquhar.
- Charles S. Serianni (president) and A. I. Savin (vice president) were principal officers, directors, and majority shareholders; Jack Farber was a minority shareholder.
- At the 1968 annual stockholders’ meeting, a director reported that Farquhar was willing to sell an additional 160 acres abutting Servan’s golf course, suitable for an additional golf course.
- Stockholders discussed potential financing (including refinancing and use of redemption proceeds), but took no formal vote on purchasing the abutting tract.
- In the following year, Serianni and Savin purchased the 160-acre Farquhar tract personally rather than for Servan.
- About four years later, Serianni, Savin, and Servan sold the original corporate 160 acres and the personally acquired 160 acres as a combined transaction; all stockholders except Farber approved the sale.
- Farber brought a shareholder derivative action alleging misappropriation of a corporate opportunity, breach of fiduciary duty, and lack of effective ratification.
- After a prior appeal and remand, the district court again entered judgment for defendants, finding no corporate opportunity (or that it was rejected) and that the later sale approval ratified the conduct.

## Issues

1. Whether the opportunity to purchase the abutting 160-acre Farquhar tract was a corporate opportunity belonging to Servan.
2. If it was a corporate opportunity, whether Servan validly rejected it so that the directors could take it personally.
3. Whether stockholders’ later approval of the combined sale of both tracts constituted effective ratification of the directors’ earlier conduct.

## Decision

- The Fifth Circuit reversed the district court’s judgment for defendants.
- The court held the abutting 160-acre tract was a corporate opportunity for Servan.
- The court held Servan did not validly reject the opportunity because there was no informed corporate decision (including no formal vote) relinquishing it.
- The court held the later stockholder approval of the combined sale did not effectively ratify the prior diversion of the opportunity because the vote was not shown to be fully informed and was not sufficiently disinterested.
- The court held the directors breached fiduciary duties and were liable for damages, and remanded for assessment of damages.

## Legal Principles

- Under the corporate opportunity doctrine, directors and officers may not take for themselves an opportunity closely related to the corporation’s business where the corporation has an interest or expectancy and the ability to pursue it.
- A director seeking to take such an opportunity personally must first present it to the corporation; any rejection or authorization must be informed, in good faith, and made by disinterested decisionmakers through appropriate corporate action.
- Failure to act, delay, or lack of a formal decision does not, without more, constitute a valid corporate rejection that frees fiduciaries to appropriate the opportunity.
- Ratification of conflicted fiduciary conduct requires full disclosure of material facts and approval by disinterested shareholders; approval by interested controlling shareholders does not cleanse the breach absent a showing of informed, disinterested consent.
- A fiduciary who wrongfully preempts a corporate opportunity is liable to the corporation for resulting damages, typically measured by the value or gains attributable to the misappropriated opportunity.

## Conclusion

The Fifth Circuit held that the directors’ personal purchase of abutting land constituted misappropriation of a corporate opportunity, that the corporation did not validly reject the opportunity, and that later shareholder approval of a combined sale did not ratify the breach; the case was remanded for a determination of damages.


Farber v. Servan Land Co., 662 F.2d 371 (5th Cir. 1981)