Bayer v. Beran
49 N.Y.S.2d 2 (1944)



Facts: The shareholders of Celanese (P) filed a derivative suit against the directors of the Celanese Corporation (D). They alleged a breach of the duty of loyalty to shareholders because Miss Jean Tennyson, the wife of the CEO, was hired to sing in radio advertisements for the company The advertisements cost about one million dollars per year. The plaintiffs allege that the CEO was motivated by non-corporate purposes and that he wished to subsidize the career of his wife rather than further the interests of the corporation.

Issue:Does a director breach his or her fiduciary duty by approving a radio advertising program in which the wife of the corporate president, who was also member of board of directors, was one of the featured performers?

Rule: Directors have an obligation not to put their own interests before the interests of the corporation

Holding: Complaint dismissed.

Analysis:In their derivative suit, the shareholders alleged two causes of action. In the first, the shareholders alleged a breach of fiduciary duty by the directors in connection with a program of radio advertising. In the second, they alleged a breach of fiduciary duty relating to payments made to a corporate vice-president and director. After a trial, the court concluded there was no breach of fiduciary duty on the part of the directors because the evidence failed to show that the program was designed for a purpose other than one benefiting the corporation, and there was full and adequate consideration for the joint remuneration provided to the corporate vice-president and director. Moreover, the court held the directors acted in the free exercise of their honest business judgment, and their conduct in the transactions challenged did not constitute negligence, waste, or improvidence.