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36 Cards in this Set
- Front
- Back
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Delaware Line of Business Test for Usurping Opportunities
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(1) Did the director come upon this opportunity in their corporate or individual capacity?
(2) Is the corporation financially able to undertake the opportunity Case: Broz |
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Basic Line of Business Test for Usurping Opportunities
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(1) Is this opportunity in the corporation's line of business?
(2) ?????? Can be a broad or narrow conception (Could the business be adapted to use the opportunity) Case: eBay |
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Fairness Test for Usurping Opportunities
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Super Minority
(1) Is it fair to the shareholders? Only exists in Minnesota |
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eBay Derivative Litigation
(Usurping Opportunities) |
Facts:
- Goldman Sachs tossing lucrative IPOs to the founders of eBay personally to ensure further Court Reasoning: -Applies Basic LOB test -eBay uses investments to manage their cash flow -Breach of the Duty of Loyalty |
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Sinven v. Sinclair Case
(Usurping Opportunities) |
Facts:
-Sinclair Venezuela accuses parent company of usurping corporate opportunities -Sinclair owns a controlling interest of Sinven -Allegations of other breaches of loyalty Court Reasoning: -NEW POTENTIAL DEF.: Majority Shareholders -Do majority shareholders owe duty of loyalty to minority? - Payment of dividends which kept Sinven unable to exploit additional opportunities is acceptable -Dividends were paid out to all shareholders equally -Application of DE LOB Test (Sinclair learns about opportunities independent of their operation of Sinven) (Sinven is unable to exploit the opportunities as they were tapped from the dividends) -Only breach of loyalty was majority of shareholders voting not to enforce a distribution contract against Sinclair Parent (Both sides of the transaction) |
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Cash-Out Mergers
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-Insurgents buy controlling interest of a company
-Decide to buy the entirety of the company -No way for the minority to stop them |
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Short-Form Merger Statutes
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-If minority shareholders own less than 10% of the company
-Majority can perform a short-form merger -Minority has no choice but to take the cash |
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Super-Loyalty in Cash-Out Mergers
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Rule: DE 144 on Steroids
Majority SHs owe Minority SHs -Fair Dealing (Disclosure to the Board and SHs) (No misuse of proprietary information) (Sufficient time to consider) (Proper Structure???) -Fair Price (All relevant factors considered) Differences from 144: -YOU NEED BOTH not just one -Enhanced understanding of "fair dealing" |
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Weinberger v. UOP
(Cash-Out Merger) |
Facts:
-Big company buys half of a little company -Decides to buy the rest - Some board members involved with both entities conduct analysis -Arrive at an acceptable price range -Low ball, don't provide the analysis to the other directors -Don't vote on it, but sit in the room Court Reasoning: -Violation of the Duty of Loyalty |
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In re The Walt Disney Co. Derivative Litigation
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Facts:
-Ovitz lured away from lucrative position to be CEO at Disney -Gets a fatty contract with a bunch of severance package stuff -Ends up getting fired, receives an insane amount of money -SHs bring suit: Breach of Care, Loyalty, GF Court Reasoning: -Loyalty fails, Ovitz wasn't on both sides of the transaction at time of acceptance -GF: Wasn't intentional here, trying to avoid BJR and 102(b)(7) obstacles -Care fails, wasn't a grossly negligent decision-making process |
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Stone v. Ritter
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Facts:
-Bank Employees fail to file reports about potential money laundering -Bank gets caught, pays serious fines Court Reasoning: -Cites the Caremark Rule -Duty to Monitor goes under Good Faith -Intentionally failing to act in the face of a known duty to act -Puts GF under Loyalty -Caremark/Stone v. Ritter rule -Have a monitoring system -Use it, get reported to by it |
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Direct v. Derivative Suits
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Direct:
- Injury and Remedy to an individual SH -No procedural roadblocks (except for the cost of litigation) Derivative: -Injury and Remedy to the corporation itself -3(2 in DE) Procedural Roadblocks |
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Strike Suits
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-Big Firm finds a willing shareholder to assert a claim
-Boards settle the suit using corporate assets -Win-Win for atty's/board, lose for SH |
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3 Procedural Roadblocks to Derivative Suits
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-Bond Posting (Doesn't Exist in DE)
-Demand -Special Litigation Committees |
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Demand Requirement
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Shareholders have two options when bringing derivative suits:
(1) They demand the board take action, board usually shoots them down, decision is protected by the BJR (Grimes) (2) They claim demand would be futile, way more common,one of two conditions must be present (Majority of the Board lacks independence) (Underlying transaction is not a product of BJ) |
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Special Litigation Committee Independence
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Cases: Zapata, Oracle
Two Part Test -BJR (Informed, acting in GF, loyal) (Highest standard of Independence in the course) -Court exercises its own business judgement (Analysis of the merits) (Interesting, but rarely ever used) |
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In re Oracle Corp. Derivative Litigation
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Facts:
-Allegations of insider trading -Directors sell a bunch of stock before the price drops -Oracle forms SLC, two outside profs from Stanford -Issues a huge report, suggest dismissing the claim Court Reasoning: - SLC was not independent -Even though they took steps to show it (Willing to sacrifice their pay) -Connected to the directors through their substantial involvement with Stanford |
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Derivative Flow Chart
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(Demand)
-If made and accepted, goes to litigation -If refused, BJR protects decision, usually no merits (Claim Demand is Futile) -Accepted and board takes no action, goes to litigation -Board forms SLC (Either moves forward or is dismissed) -If dismissed, challenge using Oracle Test -If forward, litigation on the merits |
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Rule 10(b)(5)
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*Four Elements*
(1) Material Misstatement or Omission (2) Intent, scienter, motive etc. (3) Reliance -Proceeds by class action, difficulty establishing a class (4) Loss Causation "Legislative acorn that grew into a judicial oak" |
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Fraud on the Market Theory
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- Case: Basic v. Levinson
-Allows 10(b)(5) claims to continue by establishing a class - Investors and Corporations are connected by the market -Market exists to absorb information distributed by companies -Small group of informed investors influence the market -Majority of investors rely on the integrity of the stock price -Dangerous assumption of an efficient market for judiciary to rely on, but no other way |
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Basic, Inc. v. Levinson
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Facts:
-Board keeps merger talks secret and denies them multiple times -Insider trade Court Reasoning: -Omissions were material -"substantial likelihood that a shareholder would consider it important" |
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Misappropriation Theory
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Case: O'Hagan
Doctrine: -Outsider can breach a fiduciary duty to the source of information -Three Categories of People who a duty (Individuals who sign a confidentiality agreement) (Individuals who have a practice of sharing confidence) (Family members) |
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Proxy Reimbursement
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Incumbents: Paid for by corporation up front
Insurgent: If they win, reimbursed if ratified by shareholders If they lose, no reimbursement |
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Lovenheim v. Iroquois Brands, Ltd.
(Shareholder Proposal 14(a)(8)(i)(5)) |
Facts:
- Shareholder wants to propose correct treatment of ducks during pate production - Board seeks to exclude it under 14(a)(8)(i)(5) Court Reasoning: -14(a)(8)(i)(5) Test Does the proposal relate to less than 5% of the company's assets or income? Is it not otherwise significantly related to the company's business -Second prong considers social significance, allowable |
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AFSCME v. AIG, Inc.
(Shareholder Proposal 14(a)(8)(i)(8)) |
Facts:
-Shareholder wants to propose a change to the board election process -AIG claims exclusion, election exclusion Court Reasoning: -Exception does not apply -Proposal must relate to a specific board seat in an upcoming election |
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Shareholder Inspection Rights
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-Tools to help make suing and voting sanctions more effective
-Two things (Shareholder list) (Books and Records) |
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Crane v. Anaconda
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Facts:
-Crane wants to acquire Anaconda -Wants the shareholder list Court Reasoning: -NY PARTICULAR LAW -Must own greater than 5% of the shares or for longer than 8 months -Proper purpose: anything to do with economic rights, no social concerns DELAWARE LAW: -Must be a shareholder -Proper Pupose |
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Mergers
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-Friendly, both boards support the deal
-Always must get target's shareholders to approve the deal -Acquirer shareholder approval needed when they will own less than 80% of the shares of the new company |
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Hostile Takeovers
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-Target board rejects a merger
-Acquirer approaches target shareholders -Tender offer, usually includes a control premium |
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Takeover Defenses
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-Can design contractual obligations and shareholder agreements
-However, defenses can be a breach of fiduciary duty (Revlon Duties, Unocal) |
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Unocal
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Rule:
(1) Is there reasonable ground for believing there is a threat to corporate policy (2) The defensive measures must be reasonable in relation to the threat posed(See Omnicare for standard) |
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Unocal: Omnicare Standard
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When evaluating whether takeover defenses are "reasonable":
Are the defenses coercive or preclusive to the stockholders |
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Revlon Duties
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First Phase:
If a break-up/true sale is imminent (junk bonds, selling of divisions, new dominant shareholder) Second Phase: -Directors become auctioneers -Cannot unreasonably favor one bidder over another (DOES NOT APPLY TO SELF INITIATED SALE SITUATIONS, but super rare) |
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True Sale
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Look to the ownership of the target company:
If post-merger/sale there will be a new group of dominant shareholders -Revlon is triggered |
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Cheff
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Shifts the burden of the BJR to the directors under Unocal to show that their decision to establish the takeover defenses was reasonable (Cheff)
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Greenmail
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Corporations make a deal with an individual shareholder who they know is insurgent to buy back their shares at a higher price than normal in order to prevent them from continuing with their plans
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