Northeast Harbor Golf Club v. Harris
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MAINE SUPREME JUDICIAL COURT				Reporter of Decisions
Decision:		1999 ME 38
Docket:		Han-98-131
Argued:		October 7, 1998
Decided:		February 19, 1999

Panel:	WATHEN, C.J., and CLIFFORD, DANA, SAUFLEY, ALEXANDER and CALKINS, JJ.

NORTHEAST HARBOR GOLF CLUB, INC.

v.

NANCY HARRIS

CLIFFORD, J.

	[¶1]  Nancy Harris appeals from a judgment ordering equitable relief
entered in the Superior Court (Hancock County, Atwood, J.) in favor of
Northeast Harbor Golf Club, Inc., following a non-jury trial.   Harris contends
that the court incorrectly determined that her purchase and development of
property surrounding the Club was a corporate opportunity that she
usurped, and further contends that any cause of action against her is barred
by the statute of limitations and by laches. The Club cross-appeals,
contending that, independent of usurping a corporate opportunity, Harris
breached her fiduciary duty to the Club when she began developing the
property in 1988.  Because we conclude that the court correctly determined
that Harris usurped a corporate opportunity, but that the statute of
limitations period within which the Club could have brought an action
against Harris expired, and that laches applies to preclude any action not
barred by the expiration of the limitations period, and that no other cause of
action arose, we vacate the judgment.
	[¶2]  The Northeast Harbor Golf Club is a Maine corporation operating
a golf course located in Mt. Desert.  Nancy Harris served as president of the
Club from 1971 until August of 1990.  The Club is managed by the president
and a board of directors.  Although the board of directors was empowered to
approve policy decisions, it was content to have Harris assume much of the
responsibility for the Club's operation.  Harris generously contributed to the
Club throughout her tenure as president.  In addition to her duties as
president, she performed other tasks, including mowing and gardening. 
Moreover, to alleviate the Club's financial difficulties, Harris often purchased
equipment for the Club with her own money and either leased or sold it to
the corporation for a reduced price to ensure that the Club would not be
forced to make substantial cash outlays. 
	[¶3]  From 1972 until 1984, the board, at Harris's insistence,
discussed either purchasing and developing land surrounding the Club or
developing some of the Club's real estate in order to raise money.  At the
1976 annual meeting, the Club was informed that a consultant, after
investigating the matter, had concluded that the Club's land, surrounding
the golf course, was suitable for development.  In 1977, the board authorized
Harris to form a committee to study in more detail developing some of the
Club's land.  The purpose of development was to improve the financial
condition of the Club.
	[¶4] At the 1982 meeting, Harris made it clear that she strongly
advocated housing development on Club property and volunteered to finance
construction of the first house.  Although some directors opposed
development, the board eventually approved building houses on Club
property by a 14 to 4 vote.  At the 1984 annual meeting, Harris presented an
"Outline of Proposal for Sale and Management of Excess Land" and the
board approved her proposal to sell two lots of Club land to raise revenue. 
No lots were ever sold.
	[¶5]  The subject of this lawsuit is land surrounding the Club that
Harris purchased in her own name, some in 1979, and more in 1985.  In
1979, in her capacity as Club president, Harris learned of an opportunity to
purchase property owned by Lucy Gilpin.{1}  The Gilpin property adjoins Club
property, including the driveway which provided access to the golf course,
the clubhouse, and a portion of the Club's parking lot.  Moreover, the Gilpin
property is encumbered by an easement that allows golfers to travel from
the green of one hole to the tee area of the next hole. 
	[¶6]  Harris purchased the Gilpin property in her own name for
$45,000.  She did not disclose her plans to the board prior to acquiring the
property.  The minutes from the Club's 1979 Board of Directors' meeting
stated that "Harris reported that she had recently acquired the Gilpin land
adjacent to the old first, second and third holes.  Though she intends to
hold the land for herself, the golf club will be protected."  Harris contends
that her statements were made to assure the Club that she would act
responsibly, not that she would never develop the land.  The board took no
action in response to Harris's purchase.  Harris testified that at the time she
bought the land she had no plans to develop the property and that no such
plans were formulated until 1988.
	[¶7]  In 1984, Harris, independent of her position with the Club,{2}
learned of the availability of property owned by the Smallidge family.  The
property was surrounded on three sides by the Club and on the fourth side
by a house.  Harris contracted to purchase eight of the ten interests of the
Smallidge heirs in February of 1985, another in March, and the last in June
of 1985, for a total of $60,000.{3}  Harris disclosed the purchase to the board
of directors at the Club's annual meeting on August 28, 1985.  At the
meeting, she apologized for delaying the construction of a shed approved
the previous year, explaining that the construction was delayed because the
site was adjacent to the Smallidge property and she did not want to "rock
the boat" in her negotiations to purchase the land.  She justified the
purchase by stating that she wanted the land to remain in "friendly hands." 
The board took no formal action with respect to Harris's purchase.  
	[¶8]  In December of 1988, Harris's son filed an application with the
Mt. Desert Planning Board to subdivide part of the Gilpin property into five
house lots to be named Bushwood.  The plan was approved in June of 1991. 
The board of directors of the Club took no action to oppose the subdivision. 
A group of the Club's directors, however, formed a separate organization to
oppose the subdivision, contending that it violated local zoning ordinances. 
The effort to oppose the subdivision did not succeed.  Eventually the board
became divided over development.  In 1989, however, the board agreed that
it "would not adopt any position" on Harris's son's pending subdivision
application.  Harris was asked for and gave her resignation in 1990.  In
1991, the Club voted to challenge the Bushwood subdivision.  The challenge,
however, was not successful.  See Northeast Harbor Golf Club, Inc. v. Town of
Mount Desert, 618 A.2d 225 (Me. 1992).  The Club commenced this suit
against Harris, on May 23, 1991, alleging that by purchasing the Gilpin and
Smallidge properties she usurped an opportunity that belonged to the Club.
	[¶9]  The Superior Court initially concluded that Harris had not
usurped a corporate opportunity because it found that the Club was not in
the business of purchasing property and lacked the financial ability to do so. 
The Club appealed, and we adopted the American Law Institute's (ALI)
definition of taking a corporate opportunity, vacated the judgment, and
remanded the case to the Superior Court for trial of the facts pursuant to the
ALI definition.  See Northeast Harbor Golf Club, Inc. v. Harris, 661 A.2d
1146, 1150-52 (Me. 1995).  After remand, the Superior Court found that
Harris had usurped a corporate opportunity and that the Club's claim was
not barred by the statute of limitations.  The court entered a judgment for
the Club, imposed a constructive trust on the property owned by Harris, and
ordered Harris to convey the properties to the Club on payment of the
purchase price and interest and taxes.  These appeals by Harris and the Club
followed.

I.  APPEAL BY HARRIS

A. Corporate Opportunity

	[¶10]  Harris concedes that, because she learned of the opportunity
to purchase the Gilpin property in her capacity as president of the Club, her
purchase of that property in 1979 constituted the taking of a corporate
opportunity.  See Principles of Corporate Governance § 5.05(b)(1)(A)
(American Law Institute, May 13, 1992).  She disputes liability, relying on
the statute of limitations and laches.  Harris contends that because she
learned of the availability of the Smallidge property independent of her
position as an officer of the Club, and because the purchase of that land was
not closely related to the Club's business, that there was no usurpation of a
corporate opportunity.  In reviewing the decision of the Superior Court, we
defer to the historical factual findings of the court, but the determination of
whether an opportunity is a "corporate opportunity" is a question of law that
we review de novo.  See generally State v. O'Connor, 681 A.2d 475, 476 (Me.
1996).
	[¶11]  Even if the opportunity to engage in a business activity, in
which the officer or director becomes involved, is not learned of through
her connection to the business of the corporation, nevertheless, such an
opportunity may be considered a corporate opportunity if the officer or
director knows it "is closely related to a business in which the corporation
is engaged or expects to engage." Principles of Corporate Governance
§ 5.50(b)(2).{4}
	[¶12]  "The central feature of the ALI test is the strict requirement of
full disclosure prior to taking advantage of any corporate opportunity." 
Northeast Harbor Golf Club, 661 A.2d at 1151.  This feature was designed to
prevent individual directors and officers from substituting their own
judgment for that of the corporation when determining whether it would be
in the corporate interest, or whether the corporation is financially or
otherwise able to take advantage of an opportunity.  See Ostrowski v. Avery,
703 A.2d 117, 126 (Conn. 1997) (citing Note, When Opportunity Knocks: An
Analysis of the Brudney & Clark and ALI Principles of Corporate Governance
Proposals for Deciding Corporate Opportunity Claims, 28 Corp. Prac.
Commentator 507, 516 (1987)).  Doubt about the financial capacity of a
corporation to pursue an opportunity may affect the incentive of a director
or officer to solve corporate financing problems, and evidence regarding the
corporation's financial status is often controlled by the usurping corporate
director or officer.  See Victor Brudney & Robert Charles Clark, A New Look
at Corporate Opportunities, 94 Harv. L. Rev. 998, 1020-22 (1981).  The ALI
approach recognizes the danger in allowing an individual director or officer
to determine whether a corporation has the ability to take an opportunity,
and accordingly disclosure to the corporation is required.
	[¶13] Full disclosure is likewise important to prevent individual
directors and officers from using their own unfettered judgment to
determine whether the business opportunity is related to the corporation's
business, such that it would be in the corporate interest to take advantage of
that opportunity.  "The appropriate method to determine whether or not a
corporate opportunity exists is to let the corporation decide at the time the
opportunity is presented."  3 Fletcher Cyc. Corp. § 861.10, p. 285 (1994). 
This rule protects individual directors and officers because after disclosing
the potential opportunity to the corporation, they can pursue their own
business ventures free from the possibility of a lawsuit.  If there is doubt as
to whether a business opportunity is closely related to the business of the
corporation, that doubt must be resolved in favor of the corporation so that
the officer or director will have a strong incentive to disclose any business
opportunity even remotely related to the business of the corporation.
	[¶14]  In this case, the Club's normal business is maintaining and
operating a golf course.  That business is dependent on having sufficient land
for the course itself and ensuring that the activity of golf is not hindered or
affected by development of adjacent and surrounding property.  The Club
had frequently discussed developing some of its own land and on one
occasion talked about the possibility of purchasing and developing adjacent
land.  The purchase of the Smallidge land, surrounded as it is on three sides
by the Club's land and adjacent to three of its golf holes, land that could be
developed, is, in the circumstances of this case, sufficiently related to the
Club's business to constitute a corporate opportunity.  Accordingly, Harris
would be liable to the Club for taking advantage of a corporate opportunity
for purchases of both the Gilpin and Smallidge properties unless the Club's
action is barred by the statute of limitations, or is otherwise barred by
laches.

B.  Statute Of Limitations

	[¶15]  Harris contends that the statute of limitations bars both claims. 
The statute of limitations is an affirmative defense and the burden of
establishing the expiration of the limitations period is on the party asserting
it.  See Nuccio v. Nuccio, 673 A.2d 1331, 1334 (Me. 1996) (citing Kasu
Corp. v. Blake, Hall & Sprague, Inc., 540 A.2d 1112, 1113 (Me. 1988));
M.R. Civ. P. 8(c).  Determining whether the statutory limitations period has
expired requires a determination of when a cause of action for taking a
corporate opportunity accrues.  See Anderson v. Neal, 428 A.2d 1189, 1190
(Me. 1981).
	[¶16]  The limitations period applicable to the Club's action for
usurping a corporate opportunity is six years.  "All civil actions shall be
commenced within 6 years after the cause of action accrues and not
afterwards."  14 M.R.S.A. § 752 (1980).  A cause of action accrues "the
moment when a wrongful action produces an injury for which a plaintiff is
entitled to seek vindication."  Myrick v. James, 444 A.2d 987, 994
(Me. 1982).  The gravamen of the cause of action of usurping a corporate
opportunity is the taking advantage of a such an opportunity without first
offering it to the corporation.  See Principles of Corporate Governance
§ 5.05(a)(1).{5}  The Club had a cause of action for taking a corporate
opportunity entitling it to seek judicial vindication against Harris, when
Harris, as an officer of the Club, took the opportunity to purchase the Gilpin
and Smallidge properties in 1979 and 1985 respectively, without first
offering those properties to the corporation.  See Northeast Harbor Golf
Club, Inc. v. Harris, 661 A.2d 1146, 1151-52 (Me. 1985).
	[¶17]  The Club filed its complaint on May 23, 1991, twelve years
after Harris purchased the Gilpin property.  Harris notified the board of
directors of the purchase in 1979.  The statute of limitations bars the Club's
claim against Harris for the purchase of the Gilpin property.
	[¶18]  In 1985, Harris contracted to purchase the Smallidge property
in three separate transactions.  In the first two transactions in February and
March of 1985, she contracted to purchase nine of the ten interests from
the owners of the land.  Applying the six year statute of limitations, any
action against Harris for purchasing these nine interests had to be filed by
February and March of 1991 respectively.  Because the Club did not bring
suit against Harris until May 23, 1991, the Club's action with respect to
those interests is barred because it was not brought within the limitations
period.
  	[¶19]  The only portion of the Smallidge property purchased within
the limitations period was the one-tenth interest that Harris purchased on
June 11, 1985.  Harris contends that the Club's actions as to that one-tenth
interest is barred by laches.  She argues that the Club unreasonably delayed
in filing a claim against her, and that because she invested substantial money
in developing the Smallidge property she would suffer substantial prejudice
were the Club's suit allowed to proceed.  We agree.  "Laches is the omission
to assert a right for an unreasonable and unexplained length of time. . . ." 
Longley v. Knapp, 1998 ME 142, ¶ 10, 713 A.2d 939.  "It exists when the
omission to assert the right has continued for an unreasonable and
unexplained lapse of time, and under circumstances where the delay has
been prejudicial to an adverse party, and where it would be inequitable to
enforce the right."  Fisco v. Department of Human Servs., 659 A.2d 274, 275
(Me. 1995).  Whether the equitable doctrine of laches applies in a given
circumstance is a question of law.  See H.E. Sargent v. Town of Wells, 676
A.2d 920, 926 (Me. 1996).  
	[¶20]  Harris notified the board at the annual meeting in August 1985
that she had purchased the Smallidge property.  The board took no action
with respect to the purchase.  Even after learning that Harris intended to
develop the property, the board agreed that it "would not adopt any
position" on Harris's son's pending subdivision application.  In 1990, in
reliance on the Club's position and to further her plans to develop the
Smallidge property, Harris purchased property separating the Smallidge
property from the road for $275,000.  There is nothing to indicate that
Harris would have purchased the property in the absence of her plans for
development.  Should the board prevail in its claim for taking a corporate
opportunity, that investment, made to ensure that the Bushwood
development would not be landlocked, would be substantially wasted.  The
Club's claim regarding the one-tenth interest of the Smallidge property is
barred by laches.
	[¶21]  The Superior Court concluded that the Club's claim is not
barred by the statute of limitations because the cause of action for usurping a
corporate opportunity did not accrue as to any of the property until Harris
began to actively develop the property in 1988.  The court relied on the fact
that Harris was an influential club member; on Harris's statement to the
board of directors in 1979, when she purchased the Gilpin property, that
the "Club will be protected;" that she had often purchased equipment for
the Club and either leased it or sold it to the Club to prevent it from having
to make large cash outlays; and that she told the Club after purchasing the
Smallidge property that "she wanted the property to remain in friendly
hands."  The court found that the Club could reasonably have believed that
Harris bought the property solely for the benefit of the Club. 
	[¶22]  The limitations period, however, begins to run as soon as a
cause of action accrues, and in the absence of fraud,{6} its running is not
delayed even if the cause of action is not immediately discovered.  See Kasu
Corp. v. Blake, Hall & Sprague, Inc., 582 A.2d 978, 980 (Me. 1990); Bangor
Water Dist. v. Malcolm Piruie Eng'rs, 534 A.2d 1326, 1328 (Me. 1988).  The
court's ruling in effect applies the discovery rule to extend the statute of
limitations beyond the six year period with respect to the Smallidge
property, and indeed well beyond the six years in the case of the Gilpin
property.  See Sabre Farms, Inc. v. Jordan, 717 P.2d 156, 159 (Or. Ct. App.
1986) (fact that board of directors did not have enough information about
the transaction to realize a corporate opportunity existed or was usurped did
not prevent the running of statute of limitations period).
	[¶23]  The only basis on which the Club could rely in these
circumstances to avoid the consequences of bringing suit beyond the
limitations period is the principle of estoppel, pursuant to which a
defendant may be estopped from raising the statute of limitations defense. 
See Nuccio v. Nuccio, 673 A.2d 1331, 1334 (Me. 1996); Hanusek v.
Southern Maine Medical Ctr., 584 A.2d 634, 636 & n.2 (Me. 1990).

The gist of an estoppel barring the defendant from invoking
the defense of the statute of limitations is that the defendant
has conducted [herself] in such a manner which actually
induces the plaintiff not to take timely legal action on a
claim . . . .  Only upon a demonstration that the plaintiff had in
fact intended to seek legal redresses on [its] claim during the
prescripting period can [its] failure to file suit be specifically
attributed to the defendant's conduct.

Nuccio, 673 A.2d at 1334 (quoting Townsend v. Appel, 446 A.2d 1132,
1134 (Me. 1982)).  In Nuccio, we stated that equitable estoppel should be
"carefully and sparingly applied."  Nuccio, 673 A.2d at 1334.  In this case,
the Superior Court rejected the Club's estoppel theory, concluding that the
Club failed to meet its burden to clearly prove that Harris intended to induce
the Club not to act.  Moreover, the Club failed to show that in the absence of
any statements made by Harris, that the Club, in fact, would have filed a
claim against Harris for usurping a corporate opportunity.  The evidence
showed that the Club was not prepared to file such a claim, and indeed, in
1989 voted not to oppose the subdivision application.  Based on the court's
findings, Harris is not estopped from asserting the statute of limitations as a
defense.