http://www.law.nyu.edu/studentorgs/sba/outlines/upperlevel/corporations/Corp.Siegel.fall.05.doc
State Corporate Law Class Notes
Walkovsky v. Carlton ,
- Alter-ego - Shareholder using a corporation to act on his behalf for the purpose of evading liability
- Enterprise Entity - Multiple corporate entities under common control acting in unison (does not extend liability to shareholders)
- Respondeat Superior - The corporation engaged in activities subservient to the direct authority of a master
- Fraud
Sea-Land v. Pepper Source , Contract case
- Unity of interest
- Fraud/injustice
How to tell direct from derivative suit:
- Failure to deliver declared dividend to shareholder(s)
- Special duty owed to shareholder: Direct suit
- Some shareholders harmed, others not: likely Direct suit
- Breach of fiduciary duty (care, loyalty): likely Derivative suit
- Remedy sought:
- Benefit accrues to corporation as a whole? Derivative suit
- Benefit accrues to individual shareholders or all shareholders individually? Direct Suit
Process of getting a derivative suit (section 141 of delaware law):
- Bond/Security
- Standing
- Special Litigation Committee (SLC) (usually occurs where demand excused)
- Demand Requirement (two routes, though almost never the former)
Business Judgment Rule - To be a Business Judgment, BoD could not:
- Be self-interested → where found, duty of loyalty case
- Have failed to reasonable inform themselves (Van Gorkum) →
- Be wholly irrational (though unreasonable decisions are insulated, so extremely difficult to get)
If demand refused, that decision is examined as a business judgment
- Self-interest in not suing self has been declared insufficient to amount to self-interest
- Once demand is made, they will address it during the meeting, such that the self-informing standard is met.
- Wholly irrational impossible to get as ever
Executive compensation is almost impossible to bring to merits, because under futility route, 1 & 3 are lost, and 2 requires additional proof besides dominating influence. On the other hand, director compensation can be pursued easily under 1 and perhaps 2 & 3.
AP Smith: Donates $15,000 to Princeton, shareholders dispute, claim theyre obtaining good will and better future employees. Entitled to BJR, but beware not self-interested.
Ford Motor: Ford canceled dividend and put money into smelter, wage increases, and lowering prices.
- Independent Director(s) on both sides (Bayer)
- Interlock (transaction between Corps with common directors) (SLE)
- Parent-Subsidiary (Sinclair?, Weinbager)
Bayer : Though self-interested, not a harmful business decision as another singer would've been just as well and wife wasn't overcompensated.
Ebay : Frame with Meinhard v. Salmon - Interest & expectancy? Yes, ebay sought goldman-sachs for the purposes of mining corporate opportunites.
Get the sum ups from the beginning & end of class on 10/16/07
Sinclair : Only self-dealing when the parent, by virtue of its position, receives something to the exclusion or detriment of minority SH. Under Sinclair, Ford would've won, because he distributed dividends equally regardless of motive.
Federal Corporate Law Class Notes
Robinson v. Glynn : A membership interest in a LLC does not qualify as a security (neither an "investment contract" nor "stock"), where the holder of that interest is a knowledgeable executive in the company and able to exercise control over the investment.
Facilitates class action → w/o actual reliance requirement, Plaintiff position improved
Materiality - misreps or omits must be material
10b-5 Requirements - There must have been
Private Securities Litigation Reform Act
EXAM REVIEW
Using cases helpful, but memorization discouraged.
Business concepts, such as: "freezeout" "cashout" "tender offer"
BA is rights & duties of those various entitiest engaged in business enterprises.
Fiduciary Duties Disclosure Duties (10b-5)
Rights of Partners/LLC Members/SHs/Directors to govern/profits/contribution
Manager/Member-managed LLC
Understand Meinhard v. Salmon, inside and out
Social responsibility theorists: Other interests aside from maximizing SH wealth are important
Deference by courts → BJR vs. Partnerships (Meinhard) or where tainted Procedural Hurdles → Derivative suits, Demand Requirement, Burden shifting, Interested-ness, Self-dealing (as opposed to Sinclair oil)
How can one protect self from vulnerabilities (Liability, Piercing)? -Choice of Business form -Structuring of Enterprise -Policies
How to establish liability/defend against?
§16 Matching Transactions formula
Cumulative Voting formula
BJR doesn't apply to officers, agents, or INaction by BoD (includes discussion of problem & determination not to monitor)
To rebutt BJR on merits, when showing interest, need only 1 Interested. For BJR in demand futility context, need majority.
Demand futility distinction btwn NY & DE, similar, but diff.
LLC distinction btwn NY & DE, very diff. Zapata two-step analysis (DE)
STONE! (failure to monitor, caremark context)
102b7: Standard applied in Stone
What happens at dissolution w/o partnership agreement?
If demand made & board refuses, all over? Board refusal analyzed under bjr. But since demand wasn't futile (for self-interest), you've waived first element, and 2 & 3 don't help
Demand & merits claims are separate --> Overcome demand by pleading w/particularity b/c board didn't fully inform, then apply self-interest when you get to merits.
Pleading with particularity b/c
Failure to fully inform selves is not sufficient for 102b7
Parent-sub transaction, there is greater danger, b/c BoD highly influenced by parents.
Similar fairness analysis to 144 applied to taking opportunity
W/o wilkes Close corp situation, 102b7 only applies to
Master servant relationship key to the Tort context where principal does not specifically instruct agent to commit the tort (w/o no principal).
Two types of Agents: "controlled" servants & independent contractors
Principals not liable for agents' torts, unless agent is employee or servant of principal-master
Classic insider: Director/officer
Constructive insider: Lawyer of Director/officer
Misappropriation:
Piercing: Enterprise entity liability vs. Alter ego liability
Insider trading damages (10b-5): Recovery limited to insiders profit (treble)
If controlling persons make statements on behalf of corp, corp liable.
If controlling persons make statements on their own, individuals are liable.
The Chart
When intrinsic fairness (as in 144 (which doesn't apply to parent-sub actions)), DE when you look at unfairness, look at process & substance. Did they fully disclose to BoD? Did BoD ok it? Was it harmful unfair regardless? Self-interest, Taking of corp opportunity, or competition against firm or corp
Introduction
- Proprietorship – one person business
- Partnership – more than one owner. Stat. Def. (RUPA § 202(a)) – an association of two or more persons to carry on as co-owners a business for profit.
- General –
- Limited –
- Other specialties – limited liability, etc.
- Limited Liability Company – non-incorporated company; used to exist in US in early days.
- Corporation –
Agency
Definition of Agency
The relationship between individual actors and the entity for which they act. Has legal implications:
- Authority: A is empowered with the ability to bind P
- Liability: P is liable for A’s conduct (sometimes even outside A's granted scope of power)
- Fiduciary Duties: A must exercise loyalty & care in acting on P's behalf
- Agency law: Uniform principles apply (though may be contracted around)
Formation of Agency
Manifestation of consent by one person to another that the other shall act subject to his control on his behalf with consent by the other to so act. No intent to create agency relationship required for formation.
Gorton v. Doty (ID 1937) - Principal loans car to Coach to drive kids to game. Δ wasn't compensated nor was she the coach's employer.
Gay Jenson Farms v. Cargill (MN 1981) - Cargill finances & exercises some control over WG&S, who defaults on grain sale payments to farmers.Agency & its liability implications arise out of parties' conduct (how they act, communicate, and behave toward 3rd parties), not their intentions or formalities.
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