## Facts

- HMG/Courtland Properties, Inc. (HMG), a Delaware REIT, sold interests in certain commercial real estate assets associated with the “Grossman’s Portfolio” in mid-1980s transactions.
- Lee Gray and Norman Fieber were HMG directors during the transactions; Gray also served as HMG’s President and took the lead in negotiating the sales for HMG.
- Fieber negotiated as a prospective joint-venture participant while serving on HMG’s board.
- Gray secretly held a buy-side interest in the acquiring structure through Martine Avenue Associates (Martine), a partnership in which Gray and his sister were general partners.
- Gray actively concealed his interest, including structuring documents to obscure Martine’s connection to him (e.g., listing an address associated with Fieber and arranging for execution that hid Gray’s involvement).
- Fieber knew of Gray’s concealed buy-side interest but did not disclose it to HMG’s disinterested directors.
- Gray’s conflict remained undisclosed for about a decade and was discovered by HMG in 1996.
- After investigating, HMG sued alleging breaches of fiduciary duty and common-law fraud; the Court of Chancery issued a post-trial merits decision in 1999.

## Issues

1. Whether Gray and Fieber breached fiduciary duties to HMG by participating in self-interested transactions and failing to provide full disclosure of Gray’s buy-side interest.
2. Whether the challenged transactions were subject to entire fairness review and, if so, whether defendants proved entire fairness (fair dealing and fair price).
3. Whether defendants’ concealment and related omissions or misstatements constituted common-law fraud, and what remedies were appropriate.

## Decision

- The Court of Chancery found that Gray and Fieber breached their fiduciary duties of loyalty and care to HMG.
- The court applied entire fairness review because of self-interest and the absence of fully informed, disinterested approval.
- Defendants failed to carry their burden to show the transactions were entirely fair.
- The court found that defendants’ conduct also constituted common-law fraud due to deliberate concealment of a material conflict that induced corporate action.
- The court awarded relief designed to remedy the harm, including monetary relief and disgorgement, and imposed equitable constraints aimed at preventing further harm connected to the conflicted arrangements.

## Legal Principles

- Directors owe a duty of loyalty requiring full and candid disclosure of material conflicts when seeking corporate action on a transaction in which they are interested.
- When directors engage in self-dealing or materially impair informed board approval through nondisclosure, the transaction is reviewed for entire fairness, and the interested fiduciaries bear the burden of proof.
- Entire fairness requires proof of both fair dealing (process, disclosure, timing, negotiation) and fair price.
- Active concealment of a material conflict by fiduciaries can support common-law fraud, particularly where the corporation reasonably relies on the fiduciaries’ incomplete disclosures in approving or proceeding with a transaction.
- Delaware equity may order compensatory and disgorgement remedies and craft injunctive protections to address ongoing risks arising from conflicted structures.

## Conclusion

The court held that two directors violated fiduciary duties and committed fraud by hiding a director-negotiator’s material buy-side interest in corporate asset sales; applying entire fairness, the court found defendants failed to prove fairness and ordered monetary, disgorgement, and tailored equitable relief.


HMG/Courtland Props., Inc. v. Gray, 749 A.2d 94 (Del. Ch. 1999)