## Facts

- A stockholder brought a derivative action on behalf of a Delaware corporation against its officers/directors and a second corporation they controlled.
- The corporation was a publicly held exploration venture.
- The president, acting individually, obtained a lease-option to acquire antimony properties for $60,000 and offered the properties to the corporation.
- After consulting with other directors, the corporation concluded its legal and financial condition would not permit acquisition and development at that time.
- The properties were transferred to a newly formed, closely held corporation owned primarily by the individual defendants, intended to raise capital without risking the first corporation.
- The first corporation received a long-term option to acquire the second corporation if the properties proved commercially valuable.
- The option agreement provided that, upon exercise and shareholder approval, the first corporation would deliver 800,000 shares of restricted stock in exchange for all issued and authorized shares of the second corporation.
- The board later resolved to exercise the option, and a majority of shareholders approved, but the directors held a majority of the voting stock.
- The plaintiff alleged (1) usurpation of a corporate opportunity and (2) wrongful profit and unfairness in causing the corporation to exercise the option to acquire the second corporation.

## Issues

1. Whether the directors/officers wrongfully usurped a corporate opportunity by placing the antimony properties into a separate corporation they controlled rather than the corporation they served.
2. Whether shareholder approval of the option exercise, when interested directors controlled a majority of the votes, constituted effective ratification that shifted the burden of proving unfairness to the plaintiff.
3. Whether the option exercise transaction was intrinsically fair to the corporation under an entire fairness-type review.

## Decision

- The Delaware Supreme Court affirmed the judgment for defendants.
- The Court held there was no wrongful usurpation because the corporation was not financially or legally able to acquire and develop the properties when offered.
- The Court held the shareholder vote did not shift the burden of proof because the approving majority was controlled by interested directors.
- The Court held defendants nevertheless carried the burden to show intrinsic fairness and proved the transaction was fair to the corporation at the time of approval.

## Legal Principles

- Corporate opportunity liability generally requires that the corporation be in a position, financially and legally, to pursue the opportunity when it is presented; inability to do so weighs against a finding of usurpation.
- When fiduciaries stand on both sides of a transaction, they bear the burden to prove the transaction’s intrinsic fairness to the corporation.
- Shareholder approval does not shift the fairness burden where the approving vote is controlled by interested shareholders; burden-shifting requires meaningful approval by disinterested shareholders.
- Fairness is assessed in light of the circumstances at the time the transaction is approved, including whether the corporation received fair value and whether corporate resources were misused.

## Conclusion

The court upheld an interested-director transaction where the corporation initially lacked capacity to pursue the opportunity and, although controlled-shareholder approval did not cleanse the conflict or shift the burden, the fiduciaries proved the option exercise was intrinsically fair to the corporation.


Fliegler v. Lawrence, 361 A.2d 218 (Del. 1976)