Arizona Corporation Directors Duty to Disclose Inside Information to a Shareholder
In Arizona, directors and officers of a corporation generally do not owe a duty to disclose inside information to a shareholder when purchasing that shareholder's stock, so long as the officer or director does not actively mislead the shareholder. Steinfeld v. Nielsen, 15 Ariz. 424, 444, 139 P. 879, 888 (1913).
However, if "special facts" exist, the officer or director has a limited fiduciary duty to disclose facts that affect the value of the stock being purchased. Id. at 445, 139 P. at 888.
In recognizing the special facts exception, Steinfeld relied on Strong v. Repide, 213 U.S. 419, 29 S. Ct. 521, 53 L. Ed. 853 (1909).
Steinfeld noted that the special facts in Strong were that the purchaser was a director of the corporation, owned seventy-five percent of the company's stock, was the administrator general of the company, and was the chief negotiator for the sale of company lands that would greatly increase the value of the stock. Steinfeld, 15 Ariz. at 445, 139 P. at 888.
The negotiations for the sale were pending when the purchaser director bought the shares from a shareholder who was not a corporate officer, was not involved in managing the company, and was not involved in the sale of the property. Id. at 445-46; 139 P. at 888.
The Strong court found that the purchaser director's failure to disclose the pending sale of company lands constituted fraud. Id.
Steinfeld distinguished the facts of Strong to find no special facts. Id. at 446; 139 P. at 888.
Contrasting the sellers in Strong and Steinfeld, the seller in Steinfeld was a director of the company (which was a mining and smelting company), was the superintendant of the mines and the smelter, and had intimate knowledge of the value of the mines and the operation of the smelter. Id. at 446, 139 P. at 888.
The court concluded that there were no special facts known to the buyer that were not also known to the seller. Id.