Class 18 Corporations_bb

Class 18 Corporations_bb - Corporations Business...

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Business Organizations Corporations
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Today Duty of Good Faith Stone v. Ritter Derivative Lawsuits Cohen v. Beneficial Industries Loan Corp Eisenberg v. Flying Tiger Grimes v. Donald Marx v. Akers
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Oversight In re Caremark Int’l Litigation (1996), DE Chancery Ct “…a director’s obligation includes a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists, and that failure to do so under some circumstances may, in theory at least, render a director liable for losses caused by non-compliance with applicable legal standards.” “…only a sustained or systematic failure of the
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Stone v. Ritter Facts
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1. Demand Futility Correct standard for determining whether demand should be excused as futile Majority of the board has a material financial or familial interest Majority of the board is incapable of acting independently Underlying transaction is not a product of a valid exercise of business judgment Where do failure to exercise oversight
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2. Oversight Caremark dicta now law of Delaware Fiduciary duty of corporate directors include an obligation to take affirmative law compliance measures
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3. Good Faith Violation of duty to act in good faith Acting intentionally not in the best interests of the corporation Acting with the intent to violate applicable positive law Fiduciary intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard of his duties. Does acting in bad faith give rise to liability?
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Moving on from fiduciary duties ……to Shareholder rights
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Shareholder Rights Shareholders are traditionally conceived of as the “true owners” of the corporation (residual claimants) Consequently, SHs tend to enjoy greater formal rights vis a vis the corporation than do bondholders or other constituencies: Voting Power: As a default rule, each shareholder is entitled to vote on key issues involving corporate policy E.g., election of boards, amendments to charter / bylaws, shareholder proposals, decisions about whether to merge /
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But there are a few catches… Sharehold ers Board/Officers Corporation 1. SH suits against “the corporation” do not make much sense (why?) Better target: managers (bd/officers) 2. Formally, corporate managers owe fiduciary duties to the corporation (and SHs benefit only “derivatively”) Thus, the corporation (usually) has exclusive standing to sue for any breach of fiduciary duty And who gets to makes such decisions?
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What’s a disgruntled SH to do? Attempt to claim that the breached duty was owed to her directly, and not to the corporation Eisenberg v. Flying Tiger Try to use the Shareholder Derivative Action to sue corporate fiduciaries on the corporation’s behalf Cohen v. Beneficial
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Single Case, w/ Nominal Title: Representative SH v. Corp. What is a Shareholder Derivative
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Class 18 Corporations_bb - Corporations Business...

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