1. Is a director or officer of a corporation totally barred from pursuing corporate opportunities?

2. What, if anything, is wrong with Telemachus setting up his sister Ann as owner of the Seabrook Corporation and his daughter Frances as owner of the P & P Foods Corporation in order to avoid the appearance of violating his fiduciary duty to DSM? Do family members have a right to start their own businesses?

3. What is the remedy in this case?

Demoulas Super Markets, Inc. (DSM), was owned by brothers George and Telemachus Demoulas, each owning an equal number of shares of stock. From 1964 through May 1971, the company grew from 5 stores to a chain of 14 supermarkets, including 2 stores in New Hampshire. George died suddenly on June 27, 1971, and at his death, Telemachus assumed control of DSM under the terms of a voting trust.

Valley Properties, Inc. (Valley), was set up in 1974 to provide real estate for DSM. In 1990, George’s son Arthur, age 22 and a shareholder of DSM and Valley, brought shareholder derivative actions on behalf of DSM and Valley, contending that since George’s death Telemachus had diverted business opportunities away from DSM into other businesses that were solely owned by Telemachus’s branch of the family. The evidence showed that in the 1970s two new corporations were formed and operated supermarkets in New Hampshire; DSM supplied the financing and management, but ownership was held in Telemachus’s sister’s and daughter’s names. By 1986, these stores grew into a single supermarket chain operating under the Market Basket name and entirely owned by members of Telemachus’s branch of the family.

The trial court judge determined that Telemachus had diverted these corporate opportunities from DSM, and the court ordered the transfer back to DSM of the assets and liabilities of the new corporations. In her decision, the judge cited lines from Ulysses, by Alfred Lord Tennyson, in which Ulysses speaks lovingly of his son Telemachus, expressing the belief that he would rule wisely and decently after his death. Telemachus denied that any acts were improper or gave rise to liability and charged that the judge was not impartial, as evidenced by her quotation from Tennyson’s poem. Telemachus appealed.

JUDICIAL OPINION

GREANEY, J.… We reject the various arguments that a new trial is required because the judge was not impartial.…

The judge’s use of a literary reference from Tennyson’s “Ulysses” to begin her findings of fact and rulings of law and the few sharp remarks alluded to by the defendants make no case for bias. The literary reference was the judge’s stylistic way of stating the theme of her decision, based on the facts she had found. The trial was long, arduous, and, at times, very bitter. “There might have been, from time to time, a momentary lapse—but, especially in a case as acrimonious as this one proved to be, ‘appellate courts must grant the presider some margin of humanity.’”

The [trial] judge found that DSM and Valley had been injured when “corporate opportunities,” namely, potential business ventures that should rightfully have been offered to those corporations, were instead pursued either by the individual defendants or by other companies in which those defendants held ownership interests. The judge found as well that “self-dealing” transactions had occurred in which defendants who had fiduciary duties to DSM and Valley transferred assets from these corporations to other defendant-owned companies, for less than fair value. The requirements that determine the propriety of pursuing corporate opportunities and engaging in self-dealing transactions are similar, and will be referred to here as the “corporate opportunity doctrine.” In applying the doctrine to the facts of this case, we agree with the judge’s conclusions that the defendants participated in, or benefited from, improper diversions of corporate opportunities and self-dealing transactions, to the detriment of DSM and Valley.…

… In the case of a close corporation, which resembles a partnership, duties of loyalty extend to shareholders, who owe one another substantially the same duty of utmost good faith and loyalty in the operation of the enterprise that partners owe to one another, a duty that is even stricter than that required of directors and shareholders in corporations generally.…In the often repeated words of then Chief Judge Cardozo of the New York Court of Appeals, “[n]ot honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior” that describes this more rigorous duty. ………….