conflict of interest, that he/she owns the house, but not other disclosures. Prof . Under statute BOP shifts to directors where there was a conflict of interest. If board followed statute and “sanitized” the self dealing aspect, i.e. did not vote on transaction, then BOP shifts back to shareholder. (2) If Parties can show that Compensation : Seems like an automatic conflict of interest. It will be necessary for company to create committee of disinterested outsiders to analyze the compensation and staff it pretty heavily. Prof . Bayer took a broad view of interest, finding interest where only one board member is contaminated. Lewis takes a more modern approach; it requires that most of the board is contaminated. Burden of Proof . Shareholder’s must prove unfairness or else BJR apples; unless shareholders show self dealing than BoP shifts to the Board, if the board proves that it sanitized the transaction then BOP shifts back to shareholders to prove that the transaction wasn’t fair, and in general BJR would apply. Duty of Loyalty . Broz v. Cellular Information Systems Facts : Board member was on board of plaintiff and defendant corporation. Defendant did not mention potential cellular license to the directors. Company was rising from insolvency at the time. (D only asked a few members if they wanted to engage in Held : Legal Test : 1. corporation must be financially capable of taking the opportunity, corporation has interest of expectancy in opportunity, transaction must be in the corporations line of business, and there must not be a conflict of interest. Here , the company was rising out of insolvency and had no interest in purchasing the license. Director who bought the license did not take advantage of the corporations opportunity. Thus although there was some conflict of interest and the corporation was in this line of business, there is no violation if corporation stated lack of interest in transaction. (2) There was no duty towards third party PriCellular who was engaging in merger discussions with CIS because there is no fiduciary duty to a third party corporations who is still engaged in ongoing merger discussions. Prof . Capacity of how the transaction came to your knowledge. What if Broz was approached in his personal capacity, would that make it a tougher case. Yes, Broz would then be required to approach the entire board inform them that he wanted to pursue the deal in his own capacity, and have them vote on the deal. Some however still hold that Broz should not be allowed to pursue the claim.
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- Fall '07
- Corporation, partner, fiduciary duty