A Corporate Opportunity? … Stolen?

Originally published by Charles Sartain.

Posted by Charles Sartain

Co-author Alexandria Moore

If you want to get to the meaning of a case, one exercise is to put yourself in the shoes of one participant or the other and see how you react to the events. (This also works well with Bible stories, by the way.) Last week we discussed Huff Energy fund LP v. Longview Energy Company. If you are Longview, how unjust was it? Can you try to see it the way the majority did? If not, you have company.

Today, the dissent

The dissent chastises the majority for disregarding significant evidence favorable to Longview:

• Longview became involved and dedicated time and energy at the urging and encouragement of Huff and D’Angelo;
• Huff would not fund Longview’s Eagle Ford purchase because he funded the Riley-Huff resource play;
• Huff’s leasing through Riley-Huff directly hindered Longview’s plan to lease Eagle Ford acreage;
• The area’s Riley-Huff leased were in areas being considered by Longview and were leased through brokers with whom Longview was also in negotiations;
• By diminishing the supply of acreage in a high demand market, the Riley-Huff purchase contributed to the soaring cost to lease Eagle Ford acreage that ultimately priced Longview out of the investment.

Are they saying the majority substituted its own wisdom for the jury’s? I think they are.

Lawyers, still paying attention?

On the pleading question, the dissent devotes most of the opinion after page 7 to say that Longview gave fair notice of the competition claim and the majority incorrectly applied Delaware law.

Concurrance – a different route to the same place

Relying on far too much legalese for this space, the concurring opinion differs with the majority’s analysis of question one. Here are the meaningful parts:

• The Delaware Supreme Court describes a business opportunity as consisting of “specific property.” Longview didn’t present evidence of a specific business opportunity. Instead they presented a strategy unsupported by identification of specific leases, acreages, prices, landowners or even drilling partners.
• A corporation can forfeit an interest or expectancy in an opportunity by disclaiming any interest in it. Longview rejected this opportunity. (Ed note: Of course they did; the directors pulled the funding).  At the board meeting where Longview presented the plan, no vote was taken.
• A director may take a corporate opportunity for himself once the corporation has rejected it. By rejecting the opportunity, Longview disclaimed any tie between the alleged opportunity and the nature of its business.
• Longview argued that Huff’s backing down off his promise to pay was the reason Longview had to pass on the opportunity. Because this promise was never in writing there was no enforceable agreement between Huff and Longview.
• Even if the opportunity did exist, Longview did not show that it was financially able to pursue it. Longview needed $40MM in capital to pursue the opportunity but had $27MM in debt. A stock offering might not have raised the money soon enough.

A Musical Interlude that seems to fit Longview’s situation.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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