David Brock is on the board of directors of Firm Body

Fitness, Inc., which owns a string of fitness clubs in New

Mexico. Brock owns 15 percent of the Firm Body stock and he

is also employed as a tanning technician at one of the

fitness clubs. After the January financial report showed

that Firm Bodys tanning division was operating at a

substantial net loss, the board of directors, led by Marty

Levinson, discussed the possibility of terminating the

tanning operations. Brock successfully convinced a majority

of the board that the tanning division was necessary to

market the clubs overall fitness package. By April, the

tanning divisions financial losses had risen. The board

hired a business analyst, who conducted surveys and

determined that the tanning operations did not significantly

increase membership. A shareholder, Diego Peada, discovered

that Brock owned stock in Sunglow, Inc., the company from

which Firm Body purchased its tanning equipment. Peada

notified Levinson, who privately reprimanded Brock. Shortly

thereafter Brock and Mandy Vail, who owned 37 percent of

Firm Body stock and also held shares of Sunglow, voted to

replace Levinson on the board of directors. Using the

information presented in the chapter, answer the following

questions.

1. What duties did Brock, as a director, owe to Firm Body?

2. Does the fact that Brock owned shares in Sunglow

establish a conflict of interest? Why or why not?

3. Suppose that Firm Body brought an action against Brock

claiming that he had breached the duty of loyalty by not

disclosing his interest in Sunglow to the other directors.

What theory might Brock use in his defense?

4. Now suppose that Firm Body did not bring an action

against Brock. What type of lawsuit might Peada be able to

bring based on these facts?