Broz v. Cellular Information Systems, Inc.

Robert Broz (defendant) was a director of Cellular Information Systems, Inc. (CIS) (plaintiff). He was also the president and sole stockholder of RFB Cellular (RFBC), a competitor of CIS in the cellular-telephone-service market. At the time in question, CIS had recently undergone financial difficulties and had begun divesting its cellular licenses. Mackinac Cellular Corp. (Mackinac), a third-party cellular-service provider, was seeking to sell one of its licenses. Mackinac thought that RFBC would be a potential buyer and contacted Broz about the possibility. The license was not offered to CIS. Broz spoke informally with other CIS directors, all of whom told him that CIS was not interested in the license and could not afford the license even if it were interested. At about the same time, a fourth service provider, PriCellular, had undergone discussions with CIS about PriCellular purchasing CIS. PriCellular had also been in negotiations with Mackinac about purchasing the license in question. In September 1994, PriCellular agreed on an option contract with Mackinac about purchasing the license. The option was to last until December 15, 1994, but if any competitor offered Mackinac a higher price during that time, Mackinac would be free to sell the license for that higher offer. On November 14, 1994, Broz, on behalf of RFBC, offered Mackinac a higher price for the license, and Mackinac agreed to sell to RFBC. Nine days later, PriCellular completed its purchase of CIS. CIS then brought suit against Broz, alleging that Broz breached his fiduciary duties to CIS by purchasing the license for RFBC when the newly formed PriCellular/CIS corporation had the option open to make the same purchase. The Delaware Court of Chancery found that Broz violated his fiduciary duties to CIS because he did not take into account PriCellular’s future plans regarding the purchase of CIS, and because Broz did not formally present the opportunity to CIS’s board of directors. Broz appealed.