## Facts

- Lash Furniture Co. of Barre, Inc. was a closely held corporation whose voting stock was owned equally by three brothers: Herman, Ralph, and Wallace Lash; each was a director.
- A corporate bylaw required any shareholder wishing to sell stock to first offer it to the corporation at the proposed price.
- Wallace decided to sell his shares, with Ralph intending to become the ultimate purchaser.
- Wallace first offered the shares to the corporation pursuant to the bylaw.
- At a corporate vote on whether the corporation would buy the shares, Wallace abstained; Herman voted for the corporate purchase; Ralph voted against it, defeating the purchase.
- After the corporation declined, Ralph purchased Wallace’s shares personally, gaining control; he later transferred one share to his wife, Betty, who became a director.
- Herman sued in equity alleging Ralph breached fiduciary duties by diverting the stock-purchase opportunity and by engaging in self-interested transactions involving compensation, loans, interest, and leases of property owned by Ralph and Betty.
- A special master held extensive hearings; the chancellor largely adopted the master’s findings and granted equitable relief, including divestiture-type relief and monetary recovery for the corporation.
- Both sides appealed.

## Issues

1. Whether a director breached the duty of loyalty by voting to prevent the corporation from exercising a bylaw-based opportunity to buy shares and then purchasing the shares personally to obtain control.
2. Whether the director’s compensation, loan/interest, and related-party lease dealings with the corporation constituted unfair self-dealing and misuse of corporate assets.
3. What equitable remedies were proper, including rescission or equivalent relief as to the stock transfer, accounting/disgorgement, and treatment of attorneys’ fees and specific monetary items.

## Decision

- The Vermont Supreme Court held Ralph breached fiduciary duties by using his position to defeat the corporation’s opportunity to purchase Wallace’s shares and then acquiring the shares himself.
- The court upheld findings that certain insider transactions (including lease-related charges and other financial benefits) were not shown to be fair to the corporation and required accounting and repayment/credits.
- The decree was affirmed in substantial part but remanded for further proceedings on particular remedy details, including specific monetary determinations and attorneys’ fees issues.

## Legal Principles

- Corporate directors owe a duty of loyalty and must act for the corporation’s benefit rather than personal advantage.
- When a director stands on both sides of a transaction or acts with a personal conflict, the transaction is subject to close judicial scrutiny, and the director bears the burden to justify fairness.
- A director may not appropriate for personal gain a corporate opportunity, including one grounded in corporate governance rules such as a right-of-first-refusal bylaw, by using corporate voting power to block the corporation and then taking the opportunity personally.
- In equity, courts may order divestiture or equivalent relief and require disgorgement/accounting to prevent a fiduciary from retaining benefits obtained through disloyal conduct, particularly in closely held corporations.

## Conclusion

The court treated the stock diversion and related self-dealing as breaches of fiduciary loyalty, approved strong equitable remedies to strip the fiduciary’s improper gains and compensate the corporation, and remanded only to refine particular accounting and fee-related aspects of the decree.


Lash v. Lash Furniture Co. of Barre, Inc., 296 A.2d 207 (Vt. 1972)