Question

While on vacation, Kyle Kingston, the president and chief executive officer of Remstat, Inc., is called by the CEO of Viokam Corporation, who asks Kingston if Remstat would be interested in buying 25 percent of the outstanding shares of Viokam. Remstat is a billion dollar conglomerate which has contemplated acquiring Viokam for some time. Kingston tells Viokam's CEO that Remstat is not interested. Kingston tells Viokam’s CEO, however, that KKIM, Inc., would be willing to buy the shares of Viokam. Kingston is the 100 percent shareholder of KKIM. Viokam sells the shares to KKIM for $35 million. A year later, KKIM sells the shares for $55 million to a mutual fund company. When Remstat's directors discover KKIM's purchase and sale of the Viokam shares, they bring an action against Kingston on behalf of Remstat. Which of the following is correct?
1. Kingston may be held liable to Remstat because he usurped a corporate opportunity.
2. Kingston may not be held liable to Remstat because he became aware of this opportunity outside the scope of his duties as an officer of Remstat.
3. Kingston may not be held liable to Remstat because he acted within the discretion afforded him under the business judgment rule.
4. Kingston may be held liable to Remstat because he exceeded his authority to act for the corporation.

Answer 1

Answer: A. Kingston may be held liable to Remstat because he usurped a corporate opportunity.

Explanation:

Based on the information given in the question, the correct option is that Kingston may be held liable to Remstat because he usurped a corporate opportunity.

Usurpation of a corporate opportunity is typically regarded as a form of breach of duty and it arises when a worker in a particular company uses the information that he has for his own personal gain.

In this case, Kingston is the 100 percent shareholder of KKIM and uses the information that he has regarding the sabres to his benefit.

Therefore, the correct option is A.