New Jersey Court Dismisses Claim for Violation of Corporate Opportunity Doctrine in Closely-Held Business Dispute – Egersheim v. Gaud

Two shareholders and former officers of a closely-held New Jersey company, DAG Entertainment, Inc., sued two fellow shareholders, the company, and a new company formed by the defendant shareholders in U.S. District Court. The suit, Egersheim, et al v. Gaud, et al, alleged eighteen causes of action related to alleged usurpation of corporate opportunities. The defendants moved for summary judgment as to fifteen of the eighteen causes of action, and the district court ruled that those causes of action amounted to a single cause of action under the Corporate Opportunity Doctrine. The court granted summary judgment on the fifteen causes of action, allowing three causes to proceed.

Plaintiff Kathleen Egersheim owned a three percent shareholder interest in DAG and was its former Vice President and Assistant Secretary. Plaintiff Christopher Woods owned 22.5% interest and was the former Creative Director. Defendants Luis Anthonio Gaud and Philip DiBartolo owned or controlled most of the remaining stock of the company. According to the plaintiffs, DAG began exploring an opportunity to partner with the media conglomerate Comcast in 2001. The plaintiffs claim they developed characters and show ideas for children’s television programming through 2004.

In 2005, the defendant shareholders allegedly began excluding the plaintiffs from meetings and decisions regarding DAG’s activities, and also allegedly created a new business entity called Remix, LLC without plaintiffs’ knowledge. Remix entered into a formal joint venture with Comcast. The defendants proposed ceasing DAG’s major business operations, according to the plaintiffs, and the defendants voted them out of their officer positions when they objected to this plan in September 2007. DAG essentially stopped operating at that point.

The plaintiffs filed an eighteen-count, pro se lawsuit against Gaud, DiBartolo, DAG, and Remix. The defendants filed a motion for summary judgment as to fifteen claims, arguing that the claims were duplicative and constituted a single claim under the Corporate Opportunity Doctrine, for which they alleged there were no genuine issues of material fact.

The court noted multiple procedural problems in the plaintiffs’ opposition to summary judgment. The plaintiffs violated local rules for length of filings with their 88-page opposition brief, failed to certify that their 145 “Appendix” documents were true and correct copies of the originals, and failed to submit a “Statement of Material Facts Not in Dispute.” These deficiencies prevented the court from considering most of the evidence or arguments presented by the plaintiffs.

Regarding the fifteen causes of action, the court agreed that they amounted to a single Corporate Opportunity Doctrine claim. This doctrine, according to the New Jersey Supreme Court in Valle v. North Jersey Automobile Club, 141 N.J. Super. 568, 573 (1976), prevents a corporate officer or director from personally taking advantage of an opportunity that would benefit the corporation, and that the corporation is financially capable of undertaking. The court ruled that no genuine issue of material fact existed as to DAG’s financial ability, in 2005, to take advantage of the Comcast opportunity, based on Egersheim’s testimony that DAG had about $5,000 in cash at the time and developing the television program would have cost millions. The court allowed three causes of action to continue: accounting, enforcement of contract, and declaratory judgment regarding corporate indemnification.

The business litigation attorneys at Lubin Austermuehle represent business owners and professionals throughout the Chicagoland area including Cook, DuPage, Lake, Kane, McHenry and Will Counties and in the Mid-West region including Indiana, Wisconsin and Iowa. To schedule a confidential consultation with one of our attorneys, please contact us online, at (630) 333-0333.

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