DRI member John F. Yaninek, a shareholder with Mette, Evans & Woodside in Harrisburg, Pennsylvania, successfully represented directors of a corporation recently in a matter involving a breach of fiduciary duty claim brought by three shareholders on behalf of Claude Grim Sons, Inc. against three directors of Claude Grim Sons, Inc. The claim included alleged self-dealing relating to an award of a farming contract. The law firm of Anstine & Sparler in York, Pennsylvania, represented the plaintiffs.A $40,000 per year/five year farming contract with sharecropping revenues was submitted to the directors at a board meeting by Jack Grim, a shareholder/son of a defendant director. A vote on the contract was tabled to be reviewed at a following shareholders' meeting. Prior to the next shareholders' meeting, the directors arguably accepted a farming contract and check from Gary Grim (defendant director's other son) who had farmed the property for more than 25 years. The awarded contract was for one year at $13,500 with no sharecropping revenues.

The plaintiffs alleged that the farming contract was improperly awarded and that a check was accepted for the successful contract bidder prior to any formal vote of the directors at a scheduled shareholder meeting. It was further alleged that a reason for the award of this contract was based on the contract holder's payment of legal fees of some members of the Claude Grim Sons, Inc. board of directors relating to past litigation, which involved some of the current plaintiffs to this action.

It was the defendant directors' conclusion that their acceptance of the $13,500 one year farming contract was based on: (1) the fact that the two contracts were different, in that the one year contract called for leasing 250 tillable acres of farm land only and the proposed five year contract involved leasing the entire farm, whereby the corporation would lose control of both the tillable and non-tillable land; (2) past experience with the contract holder who successfully farmed the land for more than 25 years; (3) past experience with the other contract bidder who had previously been involved with litigation against the family and had a history of not adhering to agreed upon business deals; and (4) the fact that the awarded contract's lease price was within the appropriate lease rates for the area. The defendant directors denied the allegation that their decision to award the contract was based on past legal fees paid on behalf of some of the directors by the successful contract bidder.

The potential exposure to the defendant directors of the corporation was an estimated $200,000 or more, which was calculated from an offered $40,000 per year/five year contract, plus sharecropping revenues minus the awarded contract of $13,500 per year/one year contract.

To learn more about DRI, an international membership organization of attorneys defending the interests of business and individuals in civil litigation, visit www.dri.org.