SB ii1 Jun 2019 12:23
Here are some of excerpts from FRR submission on the fiduciary duty of a Director:
"… Supreme Court adopted the stringent test and high ideals articulated in Pepper v. Litton, 308 U.S. 295 (1939): “A director is a fiduciary . . . . So is a dominant or controlling stockholder or group of stockholders . . . . Their powers are powers of trust . . . .” “He who is in such a fiduciary position cannot serve himself first and his cestuis second. He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency and honesty. . . . He cannot use his power for his personal advantage and to the detriment of the stockholders. . . . For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of the cestuis. Where there is a violation of these principles, equity will undo the wrong or intervene to prevent its consummation.” Id. The ultimate question, under California law, “is whether or not under all the circumstances the transaction carries the earmarks of an arm’s length bargain.” (Id., 306-307). Plaintiffs make no pretense that Mr. Hope had any intention to engage in any arm’s length transaction, and readily admit that his seat on the board of directors was intended by him to protect his interests as a creditor. California law is clear that directors have a fiduciary duty to act in the best interest of the corporation, not a creditor in which the director holds an interest. This was made plain in the factually-analogous case Heckmann v. Ahmanson, 168 Cal. App. 3d 119, 126-127, 214 Cal. Rptr. 177, 182 (1985), where the California Court of Appeals referred to the above language in Pepper and Jones as “the shareholders’ Magna Carta.”
“… Not a shred of evidence has been presented that Mr. Hope took any action to support any other creditors, or to ensure that FRC and its subsidiaries had a dime left over after Defendants were paid out. Moreover, Mr. Hope never placed the company’s interests ahead of his desire to carve up the company and extract funds for himself and his companies. Because there is no dispute here that Hope was an “interested director” with regard to the transactions described in the moving and opposition papers, and because Hope did not recuse himself from any deliberations, and because Hope readily admits that his goal was to protect the interests of the Outrider entities, and there can be no doubt the burden is on Hope to establish that the transactions at issue were “in good faith,” and the “inherent fairness from the viewpoint of the corporation and those interested therein.” Defendants do not present any evidence or argument to meet their burden. Moreover, Hope is not freed from his fiduciary duties as a director despite his resignation from the Board because “[o]ne who assumes such a fiduciary role cannot abandon it for personal aggrandizement.” (He
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