LEE v. R & K MARINE, INC.Read this for Question #1I. BackgroundIn December 1998, plaintiff purchased a 1999 Sea Ox boat (“the boat”) from defendant. Plaintiff and a representative of defendant signed the Standard Marine Purchase Agreement (“purchase agreement”) on 18 December 1998. Paragraph 9 of the Additional Terms and Conditions on the back of the purchase agreement stated in all capital letters, “EXCEPT TO THE EXTENT REQUIRED BY STATE LAW, SELLER EXPRESSLY DISCLAIMS ALL WARRANTIES,[598 S.E.2d 684]EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.” Delivery of the boat to plaintiff took place some time after the execution of the purchase agreement. The parties dispute the date the boat was delivered to plaintiff.In January 2002, plaintiff took the boat in for repairs. Cracks and massive deterioration were discovered in the hull. Plaintiff contracted with an appraiser, who determined the cracks and deterioration were due to manufacturing defects and the hull could not be repaired. Plaintiff was informed the manufacturer of the boat had ceased doing business, filed for bankruptcy, and was in prison for fraud. Plaintiff brought suit against defendant claiming breach of contract and breach of the warranties of merchantability and fitness for a particular purpose. Defendant moved for summary judgment on 9 May 2003. After hearing oral arguments and reviewing affidavits submitted by each party, the trial court granted defendant’s motion. Plaintiff appeals.II. IssuesThe issues are whether the trial court erred in granting: (1) defendant’s motion for summary judgment on plaintiff’s breach of contract claim and holding plaintiff was barred by the statute of limitations set forth in the North Carolina Uniform Commercial Code, N.C. Gen.Stat. 25-2-725; and (2) defendant’s motion for summary judgment on plaintiff’s claim for breach of warranty holding that defendant effectively disclaimed the warranties of merchantability and fitness for a particular purpose.III. Statute of Limitations for Breach of ContractPlaintiff contends the trial court erred in granting defendant’s motion for summary judgment regarding plaintiff’s breach of contract claim and asserts issues of material fact existed regarding the date of the delivery of the boat. We agree.The standard of review on appeal from the granting of a motion for summary judgment is whether there is any genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law. The moving party has the burden of establishing the lack of any triable issue of fact. A defendant may show entitlement to summary judgment by (1) proving that an essential element of the plaintiff’s case is non-existent, or (2) showing through discovery that the plaintiff cannot produce evidence to support an essential element of his or her claim, or (3) showing that the plaintiff cannot surmount an affirmative defense. Summary judgment is not appropriate where matters of credibility and determining the weight of the evidence exist. Once the party seeking summary judgment makes the required showing, the burden shifts to the nonmoving party to produce a forecast of evidence demonstrating specific facts, as opposed to allegations, showing that he can at least establish a prima facie case at trial.Draughon v. Harnett Cty. Bd. of Educ., 158 N.C. App. 705, 707-08, 582 S.E.2d 343, 345 (2003), aff’d, 358 N.C. 137, 591 S.E.2d 520 (2004), reh’g denied, 2004 N.C. LEXIS 520, 358 N.C. 381, 597 S.E.2d 129 (2004) (internal citations omitted); see Herring v. Liner, 163N.C.App. 534, 594 S.E.2d 117 (2004); Kampschroeder v. Bruce, 162 N.C. App. 180, 590 S.E.2d 333 (2004) (NO. COA03-308); Trivette v. State Farm Mut. Auto. Ins. Co., ___ N.C.App. ___, 596 S.E.2d 448 (2004) (NO. COA03-986); McGlynn v. Duke University, ___ N.C.App. ___, 598 S.E.2d 424 (2004) (NO. COA03-1262); see also N.C. Gen.Stat. 1A-1, Rule 56(c) (2003).Here, plaintiff contracted to buy the boat from defendant in 1998. On 18 December 1998, both parties signed a standard purchase agreement. The boat was actually delivered to plaintiff at some period of time after the purchase agreement was signed. At the summary judgment hearing, both parties presented evidence regarding the date of the boat’s delivery. Defendant claims the boat was delivered on 18 December 1998. Plaintiff claims the boat was delivered sometime after 25 December 1998. Plaintiff also presented an affidavit stating that defendant was not in possession of the boat until 21 December 1998.In January 2002, plaintiff took the boat in for repairs. After interior components of the boat were removed, massive cracks and deterioration of the hull of the boat were discovered. The appraiser determined these defects occurred in the manufacturing process where the fiberglass had not bonded correctly. Plaintiff was not aware of these defects until January 2002.A breach of contract action does not accrue until the breach occurs. N.C. Gen.Stat. 25-2-725(2). Although both parties signed the purchase agreement setting out their rights and obligations on 18 December 1998, the breach could not and did not occur until defendant actually delivered the boat that was different from what plaintiff and defendant agreed upon in the purchase agreement. Once plaintiff received the defective boat under the purchase agreement, his right to sue for breach of contract accrued. Plaintiff had four years from this date to file his claim. N.C. Gen.Stat. 25-2-725(1). The trial court found that plaintiff failed to meet the statute of limitations for his breach of contract action by two days. However, genuine issues of fact exist regarding the date the boat was actually delivered to plaintiff. Plaintiff claims it was delivered after 25 December 1998, and that defendant was not in possession of the boat until 21 December 1998. Defendant claims the boat was delivered on 18 December 1998, the same day the purchase agreement was signed.As the date of delivery is disputed and is pertinent in determining when plaintiff’s claim for breach of contract accrues, the trial court erred in granting summary judgment. The merits of this issue should be fully tried.IV. Disclaimer of Warranties of Merchantability and Fitness for a Particular PurposePlaintiff also contends that the trial court erred in granting defendant’s motion for summary judgment regarding plaintiff’s breach of warranty claim. We disagree.N.C. Gen.Stat. 25-2-316(2) (2003) provides, “to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous.” N.C. Gen.Stat. 25-1-201(10) (2003) defines the term “conspicuous” as:A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NONNEGOTIABLE BILL OF LADING) is conspicuous. Language in the body of a form is conspicuous if it is in larger or other contrasting type or color.(emphasis supplied).Here, the reverse side of the purchase agreement contained a disclaimer that read, “EXCEPT TO THE EXTENT REQUIRED BY STATE LAW, SELLER EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.” This disclaimer was printed in all capital letters with the surrounding print in lower-case letters. The language specifically mentioned both the warranties of merchantability and fitness for a particular purpose. N.C. Gen.Stat. 25-2-316(2). Further, there were at least five different references on the front of the purchase agreement notifying plaintiff of the terms and conditions listed on the back of the purchase agreement.[598 S.E.2d 686]The disclaimer met all the requirements of N.C. Gen.Stat. 25-2-316(2), and was conspicuous as defined by N.C. Gen.Stat. 25-1-201(1). Defendant effectively disclaimed any and all warranties of merchantability and fitness for a particular purpose. The trial court did not err in granting defendant’s motion for summary judgment on plaintiff’s breach of warranty claim.V. ConclusionPlaintiff failed to show the trial court erred by granting defendant’s motion for summary judgment regarding the breach of warranty claim. That portion of the trial court’s order is affirmed. Genuine issues of material fact exist regarding the date the boat was delivered to plaintiff. As this date determines when plaintiff’s breach of contract claim accrued, the trial court erred in granting summary judgment. This issue should be tried on its merits. That portion of the trial court’s order granting summary judgment regarding plaintiff’s breach of contract claim is reversed and remanded.Answer this Question 1.The appeals court affirmed that the warranty disclaimer was valid. There was no evidence that the retailer knew that the boat was junk, but supposed that could have been shown. How might that have changed the case?Read this for Question #2IN RE DARBYDamon Darby appeals from a judgment in favor of Time Warner Cable by the district court, which affirmed the bankruptcy court. After Darby filed for bankruptcy, his cable provider, Time Warner Cable (“Time Warner”), disconnected his service. Darby attempted to give Time Warner adequate assurances of future payment, including a deposit, under 11 U.S.C. 366, but Time Warner refused to reinstate the service. Both the district court and the bankruptcy court held that Time Warner is not a utility within the purview of 11 U.S.C. 366 and is therefore not required to continue providing[470 F.3d 574]Darby service after his offer of adequate assurances. We affirm.I. FACTUAL AND PROCEDURAL HISTORYAppellant Darby filed for Chapter 13 bankruptcy on July 30, 2004. Soon after receiving notice of the filing, Time Warner terminated Darby’s cable service. Darby offered Time Warner a deposit to reinstate his cable service. Time Warner refused to reinstate his service, and Darby filed a motion with the bankruptcy court to compel Time Warner to reinstate his service upon the offering of adequate assurances of future payment as required by 11 U.S.C. 366.Time Warner argued that it was not a utility within the meaning of 366, and therefore, it did not have to reinstate Darby’s cable service even if he offered adequate assurances. The bankruptcy court ordered that Time Warner reinstate the service upon the grant of a $250 super-priority claim to Time Warner should Darby default on his future payments. Time Warner complied with the bankruptcy court’s order and reinstated Darby’s cable service.Time Warner then filed an emergency motion to reconsider the order. At the hearing on this motion, Darby testified that cable service was not a necessity despite its convenience. He also presented evidence that, while he could submit an application for satellite services, his costs would be up to $250. The bankruptcy court reconsidered its prior order and ruled that Time Warner was not a utility and did not have to reinstate Darby’s service. The district court agreed. Darby filed this timely appeal. Time Warner has voluntarily continued to provide Darby service pending the outcome of this appeal.II. DISCUSSIONThe classification of cable service under 11 U.S.C. 366 is an issue of first impression in this Circuit. In reviewing the decision of the district court, we review legal questions de novo and factual findings for clear error. In re Acosta, 406 F.3d 367, 372 (5th Cir.2005). We hold that Time Warner is not a utility as contemplated by 366. In reaching this holding, we rely heavily on In re Moorefield, 218 B.R. 795 (Bankr.M.D.N.C.1997), where the bankruptcy court considered the same legal issue of the application of 366 of the Bankruptcy Code to Time Warner and debtors who made arguments similar to those raised by Darby. We agree with the analysis of the bankruptcy court in Moorefield and its legal conclusion that cable television does not constitute a utility under 366.The word “utility” as it is used in 366 is not defined within the statute, but some guidance is provided by the legislative history of the provision. Both the House Judiciary Report and the Senate Report on the provision state in relevant part:This section gives debtors protection from a cut-off of service by a utility because of the filing of a bankruptcy case. This section is intended to cover utilities that have some special position with respect to the debtor, such as an electric company, gas supplier, or telephone company that is a monopoly in the area so that the debtor cannot easily obtain comparable service from another utility.H.R.REP. No. 95-595, at 350 (1977), as reprinted in 1978 U.S.C.C.A.N. 5963, 6306; S.REP. No. 95-989, at 60 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5846.We must decide if Time Warner stands in a “special position with respect to” Darby such that it is a utility within the meaning of the statute. Because 366 is a[470 F.3d 575]restriction on the general right of a creditor to cease doing business with a debtor for any reason, it seems logical that a strong justification, such as the need for continued access to essential services, underlies the provision. See In re Hanratty, 907 F.2d 1418, 1424 (3d. Cir.1990). The services mentioned in the legislative history are considered “necessary to meet minimum standards of living,” In re Moorefield, 218 B.R. at 796, and we hold that the necessity of a service is what creates a “special” relationship between a debtor and a utility.The bankruptcy court in this case made a factual finding that cable television is not a necessity as it is not necessary to a minimum standard of living. Even Darby himself admitted that cable service is only a convenience, not a necessity. Similarly, in Moorefield, the bankruptcy court found that “cable television is not a necessity as millions of Americans continue to exist without such a service.” Moorefield, 218 B.R. at 797. The bankruptcy court did not err in determining that cable service is not a necessity. Therefore, cable service is not covered by 366, and Time Warner is not required to reinstate Darby’s service despite his offer of adequate assurances of future payment.Darby also argues that because he would be required to pay approximately $250 to install and initiate satellite service, he cannot “easily obtain comparable service,” H.R.REP. No. 95-595, at 350. We disagree. Even if Darby were correct in his assertion that he could not obtain an alternative to cable television, the fact that Time Warner is not a necessity is enough to exempt it from the requirements of 366. See Moorefield, 218 B.R. at 797 (“Even if there were no alternate service available to the Debtor, cable television does not rise to the level of importance of the other utilities listed under the legislative history.”). In this case, however, Darby has multiple other options, such as network access or applying for satellite service.Even if cable service were a necessity, the inconvenience of a one-time payment to a satellite provider equal to the amount of adequate assurances Darby seeks to offer Time Warner is not equivalent to the inconvenience that other courts have found to be determinative in cases involving a necessary service. See In re One Stop Realtour Place, Inc., 268 B.R. 430, 437 (2001) (The debtor was likely to lose her business if her phone company ceased service because of the time involved in obtaining new service and switching phone numbers.); In re Good Time Charlie’s Ltd., 25 B.R. 226, 227 (1982) (A tenant in a shopping mall would have needed to rewire the entire facility in order to obtain electric service from another provider.). Because cable television is neither a necessity nor would Darby be faced with crippling inconvenience in obtaining alternate service, Time Warner is not a utility as contemplated by 366.1III. CONCLUSIONBecause Time Warner Cable is not a utility as contemplated by 366 of the Bankruptcy Code, the judgment of the district court, affirming the bankruptcy court, is affirmed.Question 2.How could Time Warner assure itself of payment from Darby?Read this for Question #3Storetax.com v. GurlandI. THE CASEIn 1997, Joshua A. Gurland founded Storetrax.com (hereinafter “Storetrax”), a cor- poration which operates an internet-based commercial real estate listing service.’ In 1999, Gurland entered into an agreement with a group of investors whereby they acquired a majority interest in Storetrax’s shares and Gurland remained a member of the board and became president and chief executive officer of the corporation.6 The employment agreement provided for Gurland to serve successive, one-year terms that were renewed automatically unless either party notified the other in writing at least 90 days in advance of the agreement’s expiration date.7 The corpo-* J.D. Candidate, University of Maryland School of Law, May 2009; B.A., Journalism, University of Maryland, College Park, May 2006.1. 915 A.2d 991 (Md. 2007).2. Id. at 1010.3. See infra Part I.4. See infra Part IV.5. Storetrax, 915 A.2d at 994.6. Id. In January 2000, Gurland relinquished his CEO title, and one year later, he also surrendered thetitle of president. Id. at 994 n. 1. Gurland then assumed the position of Senior Vice President of Technology and Strategy until his employment was terminated in November 2001. Id. On December 5, 2002, Gurland resigned from his position on the board of directors. Id.7. Storetrax.com, Inc. v. Gurland, 895 A.2d 355, 359 (Md. Ct. Spec. App. 2006). JOURNAL OF BUSINESS & TECHNOLOGY LAW?STORETRAX.COM, INC. V. GURLANDration could also terminate the agreement at any time, with or without cause, upon ten days written notice.’ Upon termination, the corporation was to pay Gurland twelve months salary as compensation.9Gurland was fired on November 15, 2001.”0 The parties disagreed as to whether he was entitled to the severance payout in the contract.” Gurland wrote a letter on December 11, 2001 stating that he was entitled to his severance and while he hoped the situation would be amicably resolved, he had consulted an attorney and would proceed with a lawsuit if the issue was not resolved by December 21, 2001.12 Store- trax responded with a letter on December 20, 2001, stating that (1) Gurland was not entitled to severance;” (2) “there [was] still an opportunity to part on amicable terms, provided that” he withdraws his demand for severance; and (3) that if Gur- land pursued litigation, the Company would defend itself.’4 In January 2002, a member of Storetrax’s board attempted to end the dispute by offering a settlement, which Gurland said he would consider.'” This was the last direct dialogue between the parties.’6On January 31, 2002, Gurland filed a complaint against Storetrax alleging breach of contract and seeking $150,000 in severance pay.’7 The complaint was properly delivered to Storetrax’s resident agent in Maryland-the company’s principal place of business.'” Although the complaint was forwarded to the corporation’s agent in Delaware, where the company is incorporated, Storetrax never received notice of the lawsuit and failed to timely respond to the complaint or Gurland’s motion for summary judgment.’9 During this same period of time, Gurland also visited the corporation’s Maryland headquarters several times as part of his employment with the company, but never informed anyone there of the complaint.2″ As a result of8. Storetrax, 915 A.2d at 995.9. Id. The initial employment agreement set Gurland’s salary at $125,000; however, in the summer of2001, Gurland requested an increase in his salary to $150,000. Storetrax, 895 A.2d at 361. The corporation granted this increase but claimed it only did so because the business was relocating and needed Gurland’sservices. Id. After his salary was increased, Gurland requested that the agreement be amended to reflect the change and it was then that the company informed him they did not think the agreement was valid. Id. at 361-62. In November 2001, Storetrax requested that all employees agree to a reduction in salary, which Gur-land agreed to, bringing hissalary to $135,000. Id. at 362.10. Storetrax, 915 A.2d at 995.11. Id.12. Id. Gurland further claimed that Storetrax had not yet given him the reason for his termination.Storetrax, 895 A.2d at 362.13. The Board took the position that Gurland was not entitled to severance because of his frequentchanges in job title, his downward adjustments in salary and his weak job performance. Storetrax, 915 A.2d at 995.14. Id.15. Id. at 995-96.16. Id. at 996.17. Id.18. Id.19. Id.; Storetrax.com, Inc. v. Gurland, 895 A.2d 355, 364 (Md. Ct. Spec. App. 2006).20. Storetrax, 895 A.2d at 364.202JOURNAL OF BUSINESS & TECHNOLOGY LAW?JULIE M. DIETRICKStoretrax’s failure to respond, the Circuit Court granted Gurland’s motion for sum- mary judgment and entered a judgment against Storetrax in the amount of $150,000. In an effort to enforce the judgment, Gurland petitioned for a writ of garnishment attaching Storetrax’s bank account, which was granted on March 19, 2002.22The writ of attachment was the first time Storetrax received actual notice of the lawsuit, after which the board wrote a letter to Gurland asking him to voluntarily set aside the default judgment and withdraw the garnishment of the corporation’s bank account. 3 When Gurland refused, Storetrax then moved to set aside the sum- mary judgment motion and quash the writ of attachment.24 The trial court deniedboth requests and Storetrax appealed.” Storetrax then filed suit against Gurland alleging that when he sued the corporation and attached its assets, he breached his fiduciary duties to the corporation because he was a member of Storetrax’s board of directors. 26 The trial court found for Gurland, and Storetrax appealed this judg- ment to the Maryland Court of Special Appeals.27 The appellate court consolidated the cases2″ and affirmed in relevant part, holding that Gurland had not breached his fiduciary duties.2 9 The Maryland Court of Appeals granted certiorari to address whether a member of the board of directors of a corporation breaches his fiduciary duty when he sues the corporation in his capacity as an aggrieved former em- ployee, obtains summary judgment by default, attaches the corporation’s assets without notice, and refuses to lift the judgment and garnishment.3″21. Id.22. Storetrax, 915 A.2d at 996.23. Id.24. Id.25. Id. at 996-97. The Court of Special Appeals, in an unreported opinion, Storetrax.com, Inc. v. Gurland, No. 0561, September Term 2002, reversed the judgment and remanded the case, holding that it was an abuse of the trial court’s discretion to deny the corporation’s motion. Storetrax, 915 A.2d at 997. The night before the new trial, Gurland moved for partial summary judgment on the grounds that Storetrax had not terminated him for cause and the motion was granted. Id. The case proceeded to trial on the breach of contract issue and ajury returned a verdict in favor of Gurland for $150,000. Id. Storetrax appealed this judgment as well. Id.26. Id. In particular, Storetrax argued that Gurland specifically knew Storetrax was insolvent when he filed the lawsuit, never advised the corporation of his lawsuit despite visiting the corporation after its filing, con- cealed existence of the lawsuit in order to obtain a default judgment, obtained summary judgment despite knowing the corporation opposed his breach of contract claims, attached Storetrax’s bank account, and op- posed attempts to have the judgment and the garnishment set aside. Id.27. See Storetrax.com, Inc. v. Gurland, 895 A.2d 355 (Md. Ct. Spec. App. 2006).28. Id. at 358.29. Id. The Court of Special Appeals did find, however, that the trial court erroneously entered summaryjudgment in favor of Gurland. Id. at 365-71. The appellate court also discussed Storetrax’s argument that the trial court erroneously applied principles of Maryland law, when it should have applied principles of Delaware law. Id. at 371. However, the court noted that, as Storetrax conceded, the substantive law regarding breach of fiduciary duty was the same in both Maryland and Delaware and thus any alleged error was harmless. Id. at 373. The court therefore continued to apply principles of Maryland law, when available. Id.30. Storetrax, 915 A.2d at 998. VOL. 4 NO. 1 2009?STORETRAX.COM, INC. V. GURLAND II. LEGAL BACKGROUNDMaryland courts have outlined a set of broad, underlying fiduciary duty principles applicable to all corporate officers, regardless of their position or interest in a cor- poration. While Storetrax.com, Inc. v. Gurland3″ was a case of first impression in Maryland, there are still well-settled principles of the general fiduciary duties that govern corporate officers and directors, a director’s ability to sue the corporation he works for, and a director’s right to pursue his claim against that corporation as a creditor. 2A. Maryland’s FiduciaryPrinciples Emphasize That a DirectorMust Place The Corporation’sInterests Ahead of His OwnMaryland has long held that a director of a corporation bears an important fiduci- ary relation to the corporation-one of trust and confidence that requires him to act in the best interests of the corporation.” In Cumberland Coal & Iron Co.,34 the Maryland Court of Appeals first explained that the affairs of corporations should be entrusted to the exclusive control of the directors and when they accept the position, there is an inherent obligation that they will use their best efforts to pro- mote the interests of the shareholders and will not place their own interests ahead of those of the corporation. 5 The court further noted that if a director places him- self in such a position, he cannot be acting both for himself and the corporation. 6 If he does so, the corporation is “deprived of the benefit of his judgment and super- vision in regard to matters in which such judgment and supervision might be most essential” to the corporation’s interests and the other directors are placed in an undesirable and potentially embarrassing situation.37 The policy behind this rule is not only to ensure that corporate directors and officers operate in good faith, but also to remove any temptation to do wrong.” As a result, courts subject transac- tions between parties operating under fiduciary duties to exact and rigid scrutiny.39 Six years later in Booth v. Robinson4,0 the court again noted the important role of the corporate director, and explained that because directors have such a wide31. 915 A.2d 991.32. See infra Part II.A.-D. The Maryland Court of Appeals applied Maryland law where it was availableunder the theory that the law of both Maryland and Delaware was substantively the same regarding fiduciary duty principles. Storetrax,895 A.2d at 373. This note does not address whether this determination was correct.33. See Cumberland Coal & Iron Co. v. Parish, 42 Md. 598 (1875).34. Id.35. Id. at 605-06.36. Id. at 606.37. Id.38. Id.39. Id. Once a claim is brought before the court, the party who is being accused of breaching his fiduciaryduty has the burden of proof in establishing that the transaction he entered into was fair and equitable. Id. at 605-06.40. 55 Md. 419 (1881).JOURNAL OF BUSINESS & TECHNOLOGY LAW?JULIE M. DIETRICKbreadth of power,4′ they should be liable not only for fraud or negligence, but also for any acts that are contrary to the good faith duty required of them.42Since these early cases, the Maryland courts have continuously applied these rules and expanded on what it means to be a director of a corporation. In Parishv. Maryland & Virginia Milk Producers Ass’n,4 3 the Maryland Court of Appeals ex- plained that because of his fiduciary duties, a director must reveal all facts material to the corporation’s transactions and can be held liable when he conceals some- thing.44 In Parish, members of a milk producing farm cooperative brought suit against the cooperative and its directors alleging gross negligence and breach of fiduciary duty when the directors sold the cooperative’s assets for less than cost and personally benefited from transactions involving the cooperative.4″ In reversing the trial court’s dismissal of the action, the appellate court noted that directors do have wide discretion in corporate operations and, in general, the court will not interfere with the internal management of a business simply at the request of a stockholder or member.46 However, the court explained that corporate directors can lose this shield “if they permit the funds of the corporation or the corporate property to be lost or wasted by their gross or culpable negligence,” 7 which the court found was sufficiently alleged in the complaint.4″In 2000, the Maryland Court of Appeals expanded these principles further when it decided Werbowsky v. Collomb,49 and ruled that the director’s obligation to per- form his duties in good faith runs to the corporation as a whole. In Werbowsky, minority stockholders brought suit against corporate directors alleging breach of fiduciary duty and gross negligence arising out of a transaction where the corpora- tion purchased assets from the majority stockholder that exceeded their worth by $150 million.” In deciding the case, the Court of Appeals reasoned that as a check on directors’ broad managerial authority, they are required to perform their duties in good faith and in a manner they reasonably believe to be in the best interests of41. Id. at 436-37. Specifically, the court noted that corporate directors can make all necessary contracts, sell or otherwise dispose of corporate property, and make any other judgments that are necessary for the best interests of the corporation. Id.42. id. at 437-38. “[Dlirectors are not liable for the consequences of unwise or indiscreet management, if their conduct is entirely due to mere default or mistakes of judgment.” Id. at 438. For additional discussion of when corporate directors cannot be held liable for their actions taken on behalf ofthe corporation, see Coffman v. Maryland Publ’g Co., 173 A. 248, 253-54 (Md. 1934) (rejecting stockholder’s claim against a newspaper corporation that the corporation was unprofitable and wasteful on the grounds that insolvency alone is not enough to prove that a corporation’s directors breached their duty of good faith).43. 242 A.2d 512 (Md. 1968).44. Id. at 540.45. Id. at 520-37.46. Id. at 540.47. Id.48. Id. at 541.49. 766 A.2d 123 (Md. 2000).50. Id. at 133 (citing MD. CODE ANN., CORPS. &Ass’NS 2-405.1 (1976, 1999 Repl. Vol.)).51. Id. at 126-33.VOL. 4 NO. 1 2009?STORETRAX.COM, INC. v. GURLANDthe corporation.” The court noted that such a situation could not conceivably have been in the corporation’s best interests and therefore it was void.” A few months later, the Court of Appeals reiterated this in Leavy v. American Federal Savings Bank 54-a case where a bank brought action against its corporate officer alleging he breached his fiduciary duties in secretly taking a loan brokerage fee-and explained that the policy behind the fiduciary duties is to keep corporate directors interests aligned with the interests of the company and not working for their own personal gain.55 By advocating such a high duty for directors, the court ensured that the directors would be likely to go to great lengths to avoid the appearance of placing their interests ahead of those of the corporation.B. Maryland Law Governing Conflicts of Interest Has Evolved From a Bright-Line Rule That Automatically Voids Interested Director Transactions to aFact-Specific InquiryThe Maryland Court of Appeals has long held that where a person is a director of and interested in two corporations, that person cannot make or participate in the making of contracts between the two companies.56 Maryland also had a long-stand- ing common law that any contract entered into by a corporation where one of the directors had a substantial personal interest in the transaction is automatically void or voidable because it is a conflict of interest. 7This bright-line rule slowly began to evolve, however, and Maryland courts be- gan to evaluate the facts of each transaction instead of automatically ruling it void. The court explained in Indurated Concrete Corp. v. Abbott” that where there is a conflict with an interested board member, the transaction should not be automati- cally void but instead should be subject to close scrutiny, with the burden on the director accused of breaching his fiduciary duty.59 In Abbott, a stockholder sued d
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