Corporations Exam--Kitch

Fisk Ventures v. Segal

(1) An LLC agreement regulates the terms by which members control the LLC, and a court will not insert itself into the agreement to decide which member's business judgment was more in line with the LLC's best interests. (2) The fiduciary duties of an LLC member or manager may be expanded, restricted, or eliminated by the LLC agreement.

Shlensky v. Wrigley

As long as a corporation's directors can show a valid business purpose for their decision, that decision will be given great deference by the courts. Basically, absent a showing of fraud, illegality, or conflict of interest, the court must abstain from reviewing the directors' decision.

Goodwin v. Agassiz

Although a corporation's directors have a relationship of trust to the corporation itself and must exercise their duties in good faith with respect to the corporation's business and property, the corporation's directors do not occupy the position of trustees toward individual stockholders in the corporation. It is not necessary that the directors inform stockholders of everything they know about the corporation. Sale of stock, specifically, is largely impersonal. However, if a corporate director does seek out a particular stockholder for the purpose of buying that stockholder's shares, the director must disclose material facts within the director's knowledge that the stockholder does not know. If the director fails to do so, the transaction will be examined closely, and relief may be awarded to the stockholder.

VGS v. Castiel

Although the LLC Act does not require members of an LLC to give notice to another member before acting by written consent on behalf of the LLC, the acting members violate their duty of loyalty to the fellow member if they do not give him notice of the action when the action is adverse to him and he would be able to prevent the action given his controlling role in the LLC.

McConnel v. Hunt Sports Enterprises

An LLC operating agreement may limit the scope of the fiduciary duties of its members.

Rash v. J.V. Intermediate

An agent has a duty to (1) deal fairly; (2) fully disclose information about matters affecting the P's business; (3) and to not compete or contract with the principal without giving him full knowledge.

Atlantic Salmon v. Curran

An agent that makes a contract on behalf of his principal has a duty to disclose his principal, and failure to do so even in part makes the agent a party to the contact.

Manning v. Grimsley

An employer is liable for damages caused by an employee's tort in response to a third party's conduct that interfered with the employee's ability to successfully do his or her job.

Hoover v. Sun Oil

An independent contractor relationship exists when one party works on behalf of another independently, with no right retained by other party to control the contractor's day-to-day operations

Escott v. BarChris Construction

An individual will not be liable for material false statements or omissions in a registration statement if, after reasonable investigation, he had reasonable ground to believe and did believe that the assertions in the registration statement were true and that there were no omissions of material facts.

Ackerman v. Sobol Family Partnership

Apparent authority exists when (1) principal holds out agent as possessing sufficient authority and knowingly permits him to act as having such authority, and (2) person dealing with the agent in good faith reasonably believed that the agent had the necessary authority.

City of Birmingham Ret. and Relief System v. Good

In Delaware, under section 102(b)(7), when a shareholder alleges that demand is futile, he must plead particularized facts showing that the directors acted with scienter (actual or constructive knowledge that their conduct was legally improper).

Marx v. Akers

In New York, the demand requirement will be excused only when a complaint alleges that the majority of the board has an interest in the transaction, that it failed to inform itself before making a decision, or that the decision challenged is so egregious that it could not have been the product of reasoned business judgment.

Galler v. Galler

In a close corporation, an agreement as to the management of the corporation agreed to by the directors must be valid where there is no complaining minority interest, no fraud or apparent injury to the public or creditors, and no violation of clearly prohibitory statutory language.

Frandsen v. Jensen-Sundquist Agency

In a merger, the acquired corporation ceases to exist as an entity. A merger does not constitute a sale of stock from one entity to the other as the acquired corporation's shares are extinguished into the other entity, not bought. Consequently, in the case at bar, Frandsen's right of first refusal in the shareholder agreement was never triggered because there was never an offer by the majority bloc to sell its shares.

Rosenfeld v. Fairchild Engine & Airplane

In a proxy contest over policy, corporate directors have the right to make reasonable and proper expenditures from the corporate treasury for the purpose of persuading the stockholders of the correctness of their position and soliciting their support for policies which the directors believe are in the best interests of the corporation. But where it is established that such moneys have been spent for personal power, individual gain or private advantage, and not in the belief that such expenditures are in the best interests of the stockholders and the corporation, or where the fairness and reasonableness of the amounts allegedly expended are duly and successfully challenged, the courts will not hesitate to disallow them.

Murphy v. Holiday Inns

If a franchise contract regulates the distribution of goods and services, to achieve standardization, the agency relationship arises even though parties expressly deny it.

Botticello v. Stefanovicz

Ratification of an act allegedly done on behalf of a person by another requires that the person accept the results of the act with intent to ratify and complete understanding of the material circumstances of the act.

CA v. AFSCME Employees Pension Plan

1) A bylaw is permissible if it defines the process and procedure through which a board of directors makes business decisions. This is explicitly stated in Delaware statutes. 2) A corporation's board may not enter a contract that requires it to act in a manner that would violate its fiduciary duties. Under section 109(a) and section 141(a), a stockholder's statutory power to amend, adopt, or repeal a bylaw is subject to a board's duty to manage the corporation.

Weinberger v. UOP

1) Fairness standard: It is first the burden of the plaintiff attacking the merger to demonstrate some basis for invoking the fairness obligation. Then the ultimate burden of proof is on the majority shareholder to show by a preponderance of the evidence that the transaction is fair. However, where corporate action has been approved by an informed vote of a majority of the minority shareholders, the burden entirely shifts to the plaintiff to show that the transaction was unfair to the minority. 2) Fair dealing: Fairness requires fair dealing and fair price. The duty of candor and use of possessed superior knowledge to mislead a stockholder are obviously not permitted. Persons required to abide by this standard are directors, officers, and all those privy to matters of interest/significance.

Paramount Communications v. QVC Network

1) If a corporation undertakes a transaction that will cause a change in corporate control or a break-up of the corporate entity, the directors' obligation is to seek the best value reasonably available to the stockholders. 2) Although an attorney should zealously advocate on his client's behalf, he should do so professionally and must avoid engaging in rude or uncivil behavior.

Gorton v. Doty

1) Ownership of vehicle used by alleged agent is prima facie evidence of agency 2) Three things must exist in agent/principal relationship: agreement, control, agent action on behalf of principal.

In re Ebay, Inc. Shareholders Litigation

1) Shareholders are not required to make a pre-suit demand on a corporation's board of directors prior to bringing a derivative action if the independence of a majority of the board's members is reasonably questionable. 2) Directors of a corporation are not permitted to personally accept private stock allocations in an initial public offering of the corporation's stock when the corporation itself could have purchased the stock.

Broz v. Cellular Information Systems

1) The Corporate Opportunity Doctrine is implicated only "where the fiduciary's seizure of an opportunity results in a conflict between the fiduciary's duties to the corporation and the self-interest of the director as actualized by the exploitation of the opportunity." 2) Court provides a four factor BALANCING test for finding corporate opportunity: Is the other party financially able to take advantage of the opportunity, does the corporation have an interest or reasonable expectancy, is it in the line of business, does the corporation have an interest or reasonable expectancy, and is there a conflict between Broz's self-interest and his role as a director?

Grimes v. Donald

1) The distinction between a direct claim and a derivative claim depends upon the nature of the wrong alleged and the relief, if any, which could result if plaintiff were to prevail. To pursue a direct action, the stockholder-plaintiff must allege more than an injury resulting from a wrong to the corporation. The plaintiff must state a claim for an injury which is separate and distinct from that suffered by other shareholders, or a wrong involving a contractual right of a shareholder which exists independently of any right of the corporation. 2) In Delaware, courts will excuse demand requirement if there is reasonable doubt that the majority of the board can make an independent decision due to self interest of the board, dominance of the board by extraneous considerations or one of the directors, or the transaction not being a · valid exercise of business judgement.

G & S Investments v. Belman

1) The mere filing of a complaint seeking remedies including the judicial dissolution of a partnership does not act as a dissolution of the partnership. 2) A partner's capital account is calculated by adding up the cost basis of all contributions the partner has made to the partnership, then subtracting all distributions the partner has received.

Boilermakers Local 154 Retirement Fund v. Chevron

1) The standard of review for challenging bylaws requires a showing that the bylaws cannot operate lawfully or equitably under any circumstance. 2) Delaware law says "bylaws may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the rights or powers of its stockholders, directors, officers or employees." 3) Boards can adopt/amend bylaws without shareholder assent.

Jenson Farms v. Cargill

1) Veto power is not enough to show agency, but managing a debtor's business can. 2) Elements of agency can be found based on circumstantial evidence. 3) Buyer/seller relationship requires that the two parties represent independent business.

United States v. O'Hagan

1. A person is guilty of securities fraud when he misappropriates confidential information for securities trading purposes, in breach of a duty to the source of that information. 2. SEC Rule 14e-3 is a proper use of the SEC's rulemaking authority and should be given deference.

Paramount Communications v. Time Incorporated

A board of directors may enter into a transaction in order to defeat a reasonably perceived threat to the corporation's business so long as the board's decision is reasonable in relation to the threat posed. Such perceived threats include, but are not limited to, inadequate value of the tender offer.

Trinity Wall Street v. Wal-Mart Stores

A company cannot exclude from a proxy statement a shareholder proposal that focuses on a matter of significant social policy related to the company's day-to-day business operations if the policy issue transcends those operations.

Dodge v. Ford

A company cannot take actions that harm its shareholders and are motivated solely by humanitarian concerns, not by business concerns. · The shareholder wealth maximization norm set forth can be understood as a standard of conduct, while the business judgment rule remains the standard of review.

McQuade v. Stoneham

A contract that requires directors of a corporation to refrain from changing officers, salaries, or policies or retaining individuals in office without consent of the contracting parties is void. A director's primary duty is to the corporation and its shareholders. A contract adding a concurrent duty to other directors brings with it the likelihood that the director will not always make personnel decisions in the best interests of the corporation.

Elf Atochem North America v. Jaffari

A contractual provision in an LLC operating agreement stating that all disputes are to be resolved by arbitration is valid. This is the case even if a party is bringing a suit on behalf of the LLC that the agreement formed, and even if the LLC that the agreement formed never signed the agreement. Delaware LLC law provides broad discretion and great flexibility for freedom of contracting for the establishment of LLCs. LLC operating agreements are thus generally enforced according to their terms.

Espinoza v. Zuckerberg

A controlling stockholder(s) of a Delaware corporation cannot ratify an interested board's decision without adhering to the corporate formalities for taking stockholder action. Under Delaware law, stockholders can assent to a corporate decision by a formal vote or by written consent. Such written consent of the controlling stockholder(s) does not need prior notice, a vote, or a meeting to be effective, but it does require prompt notice of such consent to nonconsenting stockholders. Nonconsenting stockholders are entitled to the transparency and corporate information that such prompt notice affords.

A.P. Smith v. Barlow

A corporation may take any action including authorizing contributions as long as it is consistent with state law.

Haley v. Talcott

A court may dissolve an LLC when it is not reasonably practical to carry on the business in conformity with the LLC agreement. This is true even if the LLC agreement provides for an exit mechanism so long as the exit mechanism is an insufficient alternative to dissolution.

NetJets Aviation v. LHC Communications

A court will pierce the LLC veil if: (1) there is overall injustice or unfairness and (2) the LLC is a mere instrumentality or alter ego of its owner, in that the LLC and the owner operate as a single economic unit. Factors relevant to the alter ego analysis include whether: the LLC was adequately capitalized, the owner siphoned LLC funds, and "in general, the [LLC] simply functioned as a facade for" the owner.

Town & Country House & Home Service v. Newbery

A customer base cultivated through a business's efforts may not be appropriated by former employees, regardless of whether they conspired to do so while employed by the business, under the duty not unfairly to compete.

Citadel Holding Corporation v. Roven

A director may be entitled to advance payment from a corporation for his legal fees even if he is eventually not entitled to indemnification for those fees, if whether the directory is entitled to indemnification of his legal fees is not material to his claim

Sandvick v. LaCrosse

A joint venture is like a partnership but limited in scope and duration. A joint venture is found where: (1) there is a contribution made by each party; (2) the parties share a proprietary interest and mutual control over the property; (3) there is an agreement for the sharing of profits; and (4) there is an agreement showing that a joint venture exists. A partnership, however, requires a series of acts that are aimed at a particular goal.

Alaska Plastics v. Coppock

A judgment ordering a close corporation to buy a minority shareholder's stock at fair value is an appropriate remedy when it is provided for in the incorporating documents, the court orders an involuntary dissolution of the corporation, there is significant change in the corporation's structure, or if there is a breach of a fiduciary duty among the directors.

Stroh v. Blackhaw Holding

A limitation on a class of stock that prevents the stock from receiving dividends does not invalidate the stock. The word "proprietary" in the definition of shares does not necessarily mean some kind of economic interest. In this instance, "proprietary rights" means the ability to exercise some control over the corporation, i.e. by way of a vote. Corporations are entitled to issue certain shares of stock that have preference over another class of shares. Although this creates the possibility for wrongdoing, it is a valid system under the law as long as both classes carry the same voting power.

Humble Oil v. Martin

A master-servant relationship exists when two parties agree that one party will work on behalf of another party, and be subject to that party's control of how the job will be performed.

Sinclair Oil v. Levien

A parent corporation must pass the intrinsic fairness test (the burden is on corporation to prove, subject to careful judicial scrutiny, that its transactions were objectively fair.) only when its transactions with its subsidiary constitute self-dealing in that the parent is on both sides of the transaction with its subsidiary and the parent receives a benefit to the exclusion and at the expense of the subsidiary. Otherwise, the business judgment rule will apply.

Meehan v. Shaughnessy

A partner does not violate his fiduciary duties by simply making arrangements to compete against the partnership, so long as they as they don't acquire an unfair advantage (such as by failing to "render on demand true and full information of all things affecting the partnership to any partner." UPA § 20.)

Miller v. McDonald's Corps

A person who holds out another as an agent and causes a third person to reasonably rely on the care or skill of the apparent agent (such as by branding) is vicariously liable for injuries to the third person for harm caused by that apparent agent.

Young v. Jones

A person who represents, or permits another to represent, that he or she is a partner in an existing partnership or with other persons who are not partners, is liable to third parties who rely on that representation.

Zetlin v. Hanson Holdings

Absent fraud or other illegal activity, a stockholder with a controlling interest in a corporation is free to sell that interest at a premium price as a controlling amount of shares is more valuable per share than a non-controlling amount. Minority stockholders, however, are not entitled to share equally in that premium paid for a controlling interest because the controlling interest was no theirs to sell.

Watteau v. Fenwick

A principal is liable for the acts of an agent who proceeds within the scope of authority typically given to an agent with similar duties, regardless of limitations the principal imposes on that agent.

Arguello v. Conoco

A principal is liable for the torts of his servants while acting in the scope of their employment. Some factors to consider when determining scope of employment are (1) time, place, and purpose of act; (2) its similarity to authorized activities; (3) whether the act is commonly performed by agents; (4) the extent of departure from normal methods; and (5) whether the principal would reasonably such an act to be performed.

J.I. Case v. Borak

A private federal cause of action exists for rescission or damages to a stockholder with respect to a consummated merger which was authorized pursuant to the use of a proxy statement alleged to contain false and misleading statements.

Hoddeson v. Koos Bros.

A proprietor of a business has a duty of care and precaution for the safety of customers that encompasses the reasonable exercise reasonable care and vigilance to protect customers from criminal activity.

Essex Universal v. Yates

A provision in a contract for the sale of majority share control in a corporation that calls for the immediate transfer of control of a board of directors to the buyer is not illegal even if the buyer cannot convert that share control into operating control immediately.

Hariton v. Acro Electronics

A sale of assets accompanied with a mandatory plan of dissolution and distribution is legal, even if it achieves the same results as a merger and no appraisal rights are given to shareholders. In Delaware, corporations may combine by either a sale of assets under section 271 or under the merger statute. The types of "reorganizations" are independent and both are legal although achieving the same results.

Crane v. Anaconda

A stockholder may inspect the corporation's list of stockholders to ascertain the identity of fellow stockholders for the purposes of communicating a tender offer.

Dirks v. Securities and Exchange Commission

A tippee assumes a fiduciary duty to the shareholders of the corporation not to trade on the material nonpublic information only when the insider giving the tip has breached his fiduciary duty to the shareholders by disclosing the information to the tippee, and the tippee knows or should know that there has been a breach. An insider breaches that duty only if he gives the information to the tippee in order to personally benefit, directly or indirectly, from his disclosure.

Salman v. United States

A tippee is liable for securities fraud if the tipper breaches a fiduciary duty by making a gift of confidential information to a trading relative or friend. Generally, a tippee is liable for securities fraud based on insider trading if the tipper personally benefits from the disclosure of the inside information. A tipper personally benefits from a gift of the inside information if the gift is made to a trading relative or friend.

Zapata v. Maldonado

Board has power to choose not to pursue litigation when demand is made, if board determines that a suit would be detrimental to the company. A committee can act for the board and dismiss demand to sue. When there has been a demand refusal, only ways to challenge are by alleging independence, good faith, and reasonable investigation. o However, when there has not been an initial demand (i.e. it was excused due to something rotten), and "independent directors" still have pressure from directors who just hired them, the court should steer a balancing course which would recognize that whether a lawsuit should be maintained requires a balance of many factors (ethical, commercial, promotional, public relations, employee relations, fiscal, legal).

Auerbach v. Bennett

Business judgment rule protects deliberations and conclusions of a special committee only if they possess a disinterested independence and do not stand in a dual relation which prevents an nonprejudicial exercise of judgment.

Stone v. Ritter

Caremark requires "sustained or systematic failure of the board to exercise oversight" in order to prove liability for a lack of good faith.

Jordan v. Duff and Phelps

Close corporations that purchase their own stock have a duty to disclose to the sellers all material information about the corporation. Material information is all information that would significantly alter an investor's decision making with regards to the value of a particular stock.

Meinhard v. Salmon

Co-adventurers (especially managing ones), like partners, have a fiduciary duty to each other, including sharing in any benefits that result from the parties' joint venture.

Halliburton v. Erica P. John Fund

Court does not modify presumption of reliance, but agrees that defendants should get an opportunity to rebut the presumption at the class certification stage by showing a lack of price impact. There is an implied private cause of action that requires the plaintiff to prove the following in order to recover damages: 1) A material misrepresentation or omission by the defendant 2) Scienter 3) A connection between the misrepresentation or omission and the purchase or sale of a security 4) reliance upon the misrepresentation or omission (the most direct way a plaintiff can demonstrate reliance is by showing that he was aware of a company's statement and engaged in a relevant transaction based on that specific misrepresentation.). Look for whether the alleged misrepresentations were publicly known, whether they were material, whether the stock traded in an efficient market, and whether the plaintiff traded the stock between the time the misrepresentations were made and when the truth was revealed 5) economic loss 6) loss causation

Walkovszky v. Carlton

Courts will disregard the corporate form, piercing the "corporate veil," to prevent fraud and/or if there has been a lack of respect for corporate formalities. If the person uses the corporation to further his own rather than the corporation's business, he will be liable under respondeat superior. The mere fact that a corporation is part of a larger enterprise is insufficient to justify veil piercing.

Benihana of Tokyo v. Benihana

DGCL Sec. 144(a)(1) provides a safe harbor for interested transactions, if "the material facts as to a director's relationship or interest and as to the contract or transaction are disclosed or are known to the Board and the board in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors..." After approval by disinterested directors, courts review the interested transaction under the business judgment rule.

Zahn v. Transamerica Corporation

Directors may not declare or withhold the declaration of dividends for the purpose of personal profit. Doing so is a breach of the duty of loyalty. A shareholder majority has the right to control the corporation; but when it does so, it occupies a fiduciary relationship toward the minority, as much so as the corporation itself or its officers and directors.

Giles v. Giles Land Company

Dissociation may be proper based on impracticability or a partner's wrongful conduct. Dissociation is appropriate if the partner engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with him (such as by threats to family members who are partners in a family business.)

National Biscuit Company v. Stroud

Each partner has an equal right in the management and conduct of a partnership, and differences within a partnership are decided by a majority of the partners. However, when there are only two partners there can be no majority, and neither partner can prevent the other from binding the partnership in the ordinary course of business.

Fenwick v. Unemployment Compensation Commission

Elements of a partnership: 1. Intention of the parties 2. Right to share in profits (very important) 3. Obligation to share in losses 4. Ownership and control of partnership property and business 5. Decision-making control (very important) 6. Conduct of the Parties toward third persons 7. The rights of the parties on dissolution 8. The language in the agreement

Kovacik v. Reed

Generally, when there is no explicit agreement as to losses, losses are to be divided equally between the partners, without regard to the amount each partner contributed to the venture. That rule, though, is only applied in cases where each of the partners contributed capital to the enterprise.

Cheff v. Mathes

If a board's buying out of a dissident stockholder was motivated by a sincere belief that the buyout was necessary to maintain what the board believed to be proper business practices, the board will not be held liable for the decision. Although in cases where shares are purchased by a corporation with corporate funds to remove a threat to control, the burden is on the directors, the business judgment rule kicks in when the directors prove a good faith and reasonable investigation behind their decision.

Cinerama v. Technicolor

If a shareholder plaintiff fails to meet its evidentiary burden, the business-judgment rule attaches to protect corporate officers and directors and the decisions they make, and Delaware courts will not second-guess these business judgments. If the rule is rebutted, the burden shifts to the defendant directors, the proponents of the challenged transaction, to prove to the trier of fact the "entire fairness" of the transaction to the shareholder plaintiff. The factors that must be considered in judging fairness: timing, initiation, negotiation, structure of the transaction, the disclosure to and approval by the directors, and the disclosure to and approval by the shareholders.

Reading v. Regen

If an agent takes advantage of his service and violates his duty of honesty and good faith to make a profit for himself (in the sense that the assets of which he has control, the facilities which he enjoys, or the position which he occupies are the real cause of his profits, instead of merely affording the opportunity to profit) the principal is entitled to the proceeds.

Reese v. Newman

If grounds exist for both dissolution of a limited liability company and dissociation of a member, a court has the discretion to choose between the alternatives. Although the dissociation statute uses the word "shall," that directive is not to the court. The statute does not state that a court shall order dissociation if one of the grounds for dissociation exists; the statute states that a member shall be dissociated if a court orders dissociation based on one of the grounds. The court has discretion.

Revlon v. MacAndrews & Forbes Holdings

If the business judgment rule applies, there is a presumption in favor of the directors making a business decision. However, when a board implements anti-takeover measures, there is a potential for conflict that places upon the directors the burden of proving that they had reasonable grounds for believing there was a danger to corporate policy and effectiveness, a burden satisfied by a showing of good faith and reasonable investigation. (Unocal). In addition, the directors must analyze the nature of the takeover and its effect on the corporation in order to ensure balance--that the responsive action taken is reasonable in relation to the threat posed. The directors' general broad powers to manage the business and affairs of the corporation are augmented by the specific authority conferred under 8 Del. C. § 160(a), permitting the company to deal in its own stock, but when exercising that power in an effort to forestall a hostile take over, the board's action are strictly held to the fiduciary standards outlined in Unocal.

Mill Street Church of Christ v. Hogan

Implied authority to act as an agent exists when it is shown that a principal acted in a manner that would lead an agent to reasonably believe that the principal intended for the agent to have such powers as are practically necessary to carry out the duties delegated.

Caremark

In Delaware, a board of directors has a good-faith obligation proactively to take affirmative compliance measures (including having a a corporate information and reporting system). A showing of sustained or systematic failure of the board to exercise oversight is needed to prove liability for a lack of good faith.

In re Investors Bancorp, Inc. Stockholder Litig.

In awarding itself compensation pursuant to shareholder-approved general parameters of an equity incentive plan, a board of directors must exercise its authority consistently with equitable principles of fiduciary duty. Generally, stockholders may ratify a compensation plan if they know exactly what they are approving. If, however, directors are able to exercise discretion and determine the specific amounts and terms of the awards after stockholder approval of a general plan, ratification does not apply. In such a case, the board action is still subject to a claim for breach of its fiduciary duties and, as a self-interested action, is subject to the entire-fairness standard of review.

Robinson v. Glynn

In order to establish a claim under Rule 10b-5, R must prove fraud in connection with the purchase of securities. It is the "economic reality" of a particular instrument, rather than the label attached to it, that ultimately determines whether it falls within the reach of the securities laws.

Securities and Exchange Commission v. Texas Gulf Sulphur

Individuals with knowledge of material inside information must either disclose it to the public or abstain from trading in the securities concerned while the inside information remains undisclosed. The materiality of a statement depends on the significance that a reasonable investor would place on the withheld or misrepresented information. There much be "a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity."

Francis v. United Jersey Bank

N.J.S.A. 14A:6-14 makes it incumbent upon directors to "discharge their duties in good faith and with that degree of diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in like positions." NY courts recognized that the nature and extent of reasonable care depended upon the type, size, and financial resources of the corporation

AFSCME v. AIG

One of these grounds, Rule 14a-8(i)(8), provide that a corporation may exclude a shareholder proposal "if the proposal related to an election for membership on the company's board of directors or analogous governing body." A shareholder proposal that seeks to amend the corporate bylaws to establish a procedure by which shareholder-nominated candidates may be included on the corporate ballet does not relate to an election within the meaning of the Rule and therefore cannot be excluded from corporate proxy materials under that regulation.

Seinfeld v. Bartz

Only material information needs to be included in proxy statements and based on various precedents, the court determines that Black-Scholes valuations are not material information. Consequently, they did not have to be included in the defendants' proxy statement and because there is no specific SEC regulation that requires Black-Scholes calculations, the defendants are not in violation of Section 14(a).

Day v. Sidley & Austin

Partners have a fiduciary duty to act in the interest of the partnership. Hence, partners may not withhold any information to personally profit at the expense of the firm.

Ramos v. Estrada

Pooling agreements are valid and specifically enforceable even if one of the parties seeks to get out of the agreement. A pooling agreement does not constitute a proxy that may be revoked by a party at any time. California law states that a proxy is a written authorization giving another shareholder power to vote with the authorizer's shares. The Broadcast Group agreement in this case contains no such authorization. It states the members will consult each other, try to obtain a consensus, and eventually all vote according to the majority of the group.

Doran v. Petroleum Management

Private offering exemption is conditioned on actual disclosure or effective access. The court has in the past enumerated four factors relevant to whether an offering qualified for the exemption: 1) the number of offerees and the relationship to each other and the issuer, 2) the number of units offered, 3) the size of the offering, and 4) the manner of the offering (most important by far).

Santa Fe Industries v. Green

Rule 10b-5 prohibits only conduct that involves manipulation or deception. Accordingly, a claim cannot be maintained under Rule 10b-5 if it does not allege any manipulation or deception.

AmerisourceBergen v. Lebanon County Employees' Retirement Fund

Section 220 of the Delaware corporations code grants shareholders the right "to inspect for any proper purpose" the corporation's stock ledger, shareholder list, and other books and records. First, shareholders must establish by a preponderance of the evidence their status as shareholders and a proper purpose, defined as "a purpose reasonably related to" their interests as shareholders. Delaware cases recognize a host of proper purposes, including investigating alleged wrongdoing or mismanagement, determining director suitability, and aiding litigation. To curb fishing expeditions, a purpose to investigate possible general mismanagement without more is not enough. Shareholders must show a credible basis to infer that possible mismanagement occurred warranting further investigation.

Fliegler v. Lawrence

Shareholder ratification of a transaction in which directors are personally interested will not shift the burden of proof to an objecting shareholder when the majority of shares that voted in favor of the transaction were held by interested directors.

Stuparich v. Harbor Furniture

Shareholders in a close corporation owe each other a strict duty of the utmost good faith and loyalty, including a duty to deal openly, honestly and fairly with each other.

In re Walt Disney Co. Derivative Litigation

The Court of Chancery defined bad faith in a fiduciary as an intentional dereliction of duty and conscious disregard for one's responsibilities.

Racing Investment Fund 2000 v. Clay Ward Agency

The Kentucky Limited Liability Act immunizes a member of a Kentucky limited liability company (LLC) from personal liability for the debts and obligations of the LLC. Notwithstanding this provision, the Act provides that members of an LLC may, pursuant to a written agreement, agree to be personally liable for the debts and obligations of the LLC. However, a member's intent to become personally liable must be stated in clear and unequivocal language. A standard provision in an operating agreement calling for occasional capital infusions, without more, does not constitute a clear and unequivocal statement of a member's intent to be personally liable. As such, the trial court erred in ordering Racing Investment to pay the judgment by means of the capital infusion provision of the Operating Agreement.

Unocal Corporation v. Mesa Petroleum

The board has broad authority on which to adopt this defensive measure (see 8 Del.C. §§ 141(a), 160(a)) and from "its fundamental duty and obligation to protect the corporate enterprise, which include stockholders, from harm reasonably perceived, irrespective of its source." The test more defensive measures is as follows. 1) The initial burden of proof is on the directors, who must first show that they had reasonable grounds for believing that a danger to corporate policy or effectiveness existed. The directors satisfy this burden by showing good faith and reasonable investigation. 2) The directors must show that the defense was reasonable in relationship to the threat posed by the hostile bid. Although Unocal allows for the consideration of other corporate constituencies, there are limits. A board may have regard for various constituencies in discharging its responsibilities, provided there are rationally related benefits accruing to the stockholders. If the two conditions are met, apply business judgement rule. If not, apply intrinsic fairness test

Kahn v. M & F Worldwide

The business judgment rule is the appropriate standard of review for a merger between a controlling stockholder and its subsidiary that is conditioned upon: (1) the approval of an independent, adequately-empowered special committee that fulfills its duty of care and (2) the non coerced, informed vote of a majority of the minority stockholders.

Clark v. Dodge

The court in McQuade v. Stoneham, 189 NE 234 (1934) effectively held that public policy and possible detriment to the corporation require that there may be no variation, however slight, from the idea that the board of directors manages the business of the corporation without any influence other than the best interests of the corporation. However, this court holds that McQuade should be limited to the facts in that case because if a contract between directors that are the sole stockholders in a corporation damages no one, not even the public, it should not be held to be illegal.

Duray Development v. Perrin

The de facto corporation and corporation by estoppel doctrines are applicable to limited liability companies. The Limited Liability Company Act is very similar to the Business Corporation Act that gave rise to the de facto corporation doctrine and coexists with the doctrine of corporation by estoppel. Both acts relate to the purpose of forming similar business associations, and both acts contemplate the time at which such associations come into being. Accordingly, the acts "should be interpreted in a consistent manner," and the de facto corporation and corporation by estoppel doctrines should apply to LLCs as well as corporations.

Lawlis v. Kightlinger & Gray

The duty of good faith includes exercising good faith in critical matters such as involuntary expulsion of a partner. A partnership that terminates a partner in bad faith breaches its agreement with that partner.

Bayer v. Beran

The duty of loyalty requires corporate directors to put corporate interests before their own private interests. Courts examine the personal transactions of directors with the most scrupulous care. Personal transactions will be void if there's evidence of improvidence or oppression, or indication of unfairness or undue advantage. And although it's not necessarily improper to appoint relatives of officers or directors to positions in a corporation, such decisions will be subject to rigorous scrutiny to determine whether the appointment serves some purpose outside the interests of the corporation.

West v. Prudential Securities

The fraud-on-the-market theory does not apply to nonpublic misstatements.

Lovenheim v. Iroquois Brands

The meaning of "significantly related" in the SEC rule for omissions in proxy statements is not limited to economic significance. Therefore, because of the ethical and social significance of Lovenheim's proposed resolution, Lovenheim has shown a likelihood of prevailing on the merits in that his proposal is "otherwise significantly related" to Iroquois business.

Southex Exhibitions v. Rhode Island Builders Association

The question of whether a partnership has been formed is determined by examining the totality of the circumstances, and evidence of profit sharing does not compel a finding of partnership formation.

In Re El Paso Pipeline Partners

The standard for good faith requires a subjective belief that the determination is in the best interests of the limited partnership. Although objective facts are relevant to such an inquiry, courts "avoid replacing the actual directors with hypothetical reasonable people." In other words, the determination must be objectively, egregiously unreasonable to constitute subjective bad faith.

Corwin v. KKR Financial Holdings

The vote of fully informed, uncoerced, disinterested stockholders to approve a transaction invokes the business-judgment rule. Even if the rule of Revlon, that a board must seek the highest value for the company, applies to such a transaction, the application of the business-judgment rule is determinative on whether that value was achieved. Further, the invocation of the business-judgment rule does not impede the effect of Revlon, because Revlon is primarily designed for pre-closing injunctive relief, not post-closing damages.

Deutschman v. Beneficial

There are two types of deceptive practices used against holders of options: 1) insider trading on undisclosed material information, and 2) affirmative misrepresentation.

Smith v. Van Gorkom

There is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. In the specific context if a proposed merger of domestic corporations, a director has a duty under 8 Del.C. § 3251(b) to act in an informed and deliberate manner in determining whether to approve the merger. But the business judgment rule does not protect "an unintelligent or unadvised judgment." Gross negligence is the proper standard to apply here.

Summers v. Dooley

When a partnership consists of only two partners, one partner cannot unilaterally bind the partnership by incurring expenses over the objection of the other.

Delaware Country Employees Retirement Fund v. Sanchez

To survive a motion to dismiss a shareholder derivative claim in which the plaintiff is asserting that demand is excused due to lack of director independence, the plaintiff must plead particularized facts, that when considered in a light most favorable to the plaintiff, create a reasonable doubt about the directors' independence. The court must analyze the facts that the plaintiff pleads with respect to the directors' lack of independence in their totality and not independent of one another.

State ex rel. Pillsbury v. Honeywell

Under DE statute the shareholder must prove a proper purpose to inspect corporate records other than shareholder lists. Proper purpose relates to your economic interest as a stockholder. Plaintiff has said that his reason is a political purpose.

Bushey & Sons v. United States

Under respondeat superior doctrine, an employer assumes the risk for the acts of its employees which arise out of, and in the course of, their employment. This level of foreseeability is not the same as foreseeability in a negligence case. It is only required that an employer would perceive that harm could flow from actions of their employees, whether or not employer takes all precautions.

Farris v. Glen Alden

Under the de facto merger doctrine, a shareholder may be entitled to appraisal rights even if a combination of two corporations is consummated by contract and not in accordance with the statutory merger procedure. Where the combination of two corporations results in the same consequences that a statutory merger would, a shareholder is entitled to his opportunity for appraisal rights.

In re Fulton

Upon dissolution of a partnership, partnership property must be used to pay the liabilities of the partnership under the priorities established in the Uniform Partnership Act: (1) debts to non-partner creditors, (2) debts to partners for non capital, (3) debts to partners for capital, and (4) debts to partners for profits.

Levin v. Metro-Goldwyn-Mayer

Using corporate funds to hire attorneys or a proxy soliciting organization in a proxy solicitation contest is not illegal or unfair if the amounts paid by the corporation are not excessive.

Majestic Realty v. Toti Contracting

Usually, one is not liable for torts of an independent contractor on his land except (1) where the landowner retains control of manner and means of doing the job, (2) where he engages an incompetent contractor, or (3) where the activity constitutes nuisance per se.

Mills v. Electric Auto-Lite

Where an omission in a proxy statement is determined to be material, the shareholder has established sufficient causation between the violation of Section 14(a) and his injury.

Perlman v. Feldman

Where the sale of a corporation's controlling interest commands an unusually large premium due to a market shortage of the corporation's product, a fiduciary may not appropriate to himself the value of that premium. Feldmann, in his position as director and majority stockholder, had a fiduciary duty to the corporation and to the plaintiffs as minority stockholders. Selling his controlling interest not only sold the interest itself, but due to the nature of the steel market, that interest carried with it the valuable power of Newport to control steel production.

Kamin v. American Express

Whether or not a dividend is declared or distributed is exclusively a matter of business judgment for the Board. It is not enough to allege imprudence or mistaken judgment, but action against directors is permitted for "neglect" of duties.