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

Corporate directors owe fiduciary duties of care, good faith, and loyalty to a corporation’s shareholders.1 However, under the business judgment rule, courts defer to corporate directors’ business decisions absent proof of self-dealing.2 In the 1944 case Bayer versus Beran, a New York trial court considered whether corporate directors breached their duty of loyalty by launching a radio advertisement campaign that featured a director’s wife as a singer.

Seymour Bayer was a shareholder of the Celanese Corporation of America, a global chemical and specialty materials company.3 Celanese claimed that its products were composed of material that was superior in quality to the leading material used at the time, which was rayon.

In 1937, the Federal Trade Commission promulgated a rule that required all Celanese products to be designated and labeled as rayon. The rule concerned the directors at Celanese, who believed that it could affect the corporation’s profitability. As a result, Celanese’s directors decided to launch a radio advertisement campaign to help illustrate the beauty and superior quality of the corporation’s products. The decision was based on studies by Celanese’s advertising department.

A radio consultant advised Celanese as to the time and stations on which to advertise. In addition, Celanese spent about $1,000,000 per year on the radio advertisement campaign. One of the singers Celanese hired, Jean Tennyson, was the wife of Camille Dreyfus, the president of Celanese and one of its directors. In fact, Tennyson appeared on the radio more than any other singer used in the advertisement campaign, but received no prominence or publicity.

Subsequently, Bayer brought a shareholder derivative action in New York Supreme Court, New York County, against Celanese’s directors, including C. F. Beran, alleging breach of the duty of loyalty. Specifically, Bayer claimed that the directors at Celanese were motivated by a nonbusiness purpose in choosing to launch the radio advertisement campaign, which Bayer alleged was intended to further, foster, and subsidize Tennyson’s singing career. Following discovery, the case went to trial.

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