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Keywords

contractfiduciarytrustcorporationgood faithexpress contract

contractfiduciarytrustcorporationexpress contract

Related Cases

Santarelli v. Katz, 270 F.2d 762

Facts

Elkay Manufacturing Company was founded by Leopold Katz and has been controlled by the Katz family since 1940. Marilyn D. Katz Santarelli, a trust beneficiary, filed a derivative suit against the company's officers and directors, including Louis Katz, alleging misappropriation of corporate assets, specifically proceeds from scrap metal sales, and diversion of corporate opportunities. The suit also involved claims regarding the management of a trust established by her grandfather, which included shares of Elkay stock.

Marilyn D. Katz Santarelli (Marilyn) brought a trust beneficiary's stockholders' derivative suit against officers and directors of Elkay Manufacturing Company (Elkay), an Illinois corporation, for alleged misappropriations of corporate assets and diversion of corporate opportunities.

Issue

Whether the payments made to the Katz family from the sale of scrap metal were authorized and whether the directors breached their fiduciary duties by diverting corporate opportunities.

Rule

Payments made from corporate assets must be authorized by a board resolution, charter provision, by-law, or express contract; otherwise, they must be returned to the corporation.

where there was no board resolution, charter provision, by-law or express contract which authorized such payments, amounts received had to be returned to corporation.

Analysis

The court determined that the payments made to Louis G. Katz and Ronald Katz from the sale of scrap metal were not authorized by any corporate resolution or contract, thus requiring their return to Elkay. The court also found that the directors acted in good faith regarding the Timmus Building transaction, as Elkay was unable to secure necessary facilities on its own.

The controlling fact is that there was no Board resolution, charter provision, bylaw, nor express contract which authorized the payment of corporate monies derived from the sale of the scrap metal.

Conclusion

The court affirmed the dismissal of some claims but reversed the dismissal regarding the unauthorized payments from scrap sales, requiring their return to the corporation. The case was remanded for further proceedings consistent with the opinion.

Affirmed in part, reversed in part, and remanded.

Who won?

Marilyn D. Katz Santarelli prevailed in part, as the court ruled that unauthorized payments from scrap sales must be returned to Elkay.

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