Analysis

Question 1

Tipper/Tippee

Answer 1

1. Does the original insider trading theory apply?
2. Did the original tipper breach her FD by revealing MNPI for a personal gain or benefit? (QUID PRO QUO)
3. Did the tippee know or should the tipper have known that the tipper disclosed MNPI for a personal gain or benefit?
   - This is enough to establish liability if tippee is a friend or relative (Salmon)
4. Did the Tippee act on the information?

If the answer is no to any of these then person with MNPI may trade w/o liability.

(Dirks, Salman)

Question 2

Original Insider Trading

Answer 2

1. A corporate insider with MNPI
2. Traded on that MNPI

(Texas Gulf Sulphur, Chiarella)

Question 3

Piercing the corporate Veil (New York)

Answer 3

the corporate veil will be pierced, and the share- holders and/or the controlling parties will be subjected to personal liability for the debts of the corporation, when the corporation has served as the instrumentality or alter ego of shareholders or controlling parties.

1. Unity of interest–> corporation serves as an instrumentality or alter ego of the shareholders or controlling parties.
   a. Undercapitalization ( not dispositive)
   b. Co-mingling of assets
   c. Corportation moves, taps, borrows another corporation’s assets without regard to their source
   d. Failure to comply w/ corporate formalities or maintain adequate corporate records. (fails to hold BOD meetings, elect directors, estblish bylaws, issue stock, keep proper books an records)
2. Circumstances that adherence to the fiction of separat existence would sanction a fraud or promote injustice.
   a. Fraud: Stategic behavior that frustrates a creditor’s ability to collet judgment (very fact specific— Look for INTENT and STRATEGIC BEHAVIOR)
   b. Promote injustice: one of the corporations would be unjustly enriched or shareholder used dummy corporation to avoid its responsibilityes to creditors

(Carlton, Pepper Source)

Question 4

Piercing the corporate veil (Virginia)

Answer 4

1. Unity of interest so that separate existences between the corporation and shareholder does not exist.
2. Corporation was a device or sham used to conceal wrongs, fraud or crime.

(Perpetual Real Estate)

Question 5

Piercing the corporate Veil (West Virginia- Laya Test)

Answer 5

1. Unity of interest so that separate existences between the corporation and shareholder no longer exists;
2. An inequitable result would occur if the acts were treated as those of the corrporation alone
3. BUT: if both prongs satisfied, there is still a potential 3rd prong- D might prevail by showing assumption of risk.

(sometimes applied to banks/lenders) When, under the circumstances, it would be reasonable for that particular party entering into a K with the corp., to conduct an investigation of the credit or request a guarantor.

(Kinney Shoe)

Question 6

Corporate Oppotunity Doctrine

Answer 6

A corporate opportunity exists where:

First, ask whether there is a corporate opportunity

1. a corporation is financialy able to exploit the opportunity;
2. the opportunity is in the corporation’s line of business;
3. the corporation has an intrest or expectancy in the opportunity; and
   - must be contractual, not a mere desire
   - Expectancy is a realitic expectation
4. Embracing the opportunity would create a conflict of interest between the director and that of the corporaton

Then ask if the director disclosed the corporate opportunity.

Note: Informing the board in a formal BOD meeting will create a safe harbor and decision will be protected under the BJR as long as decision was diliberate and informed.

Defense:

1. Source rule defense
2. Capactity defense

(Broz; eBay)

Question 7

Intrinsic Fairness Standard (determines self-dealing)

Answer 7

the burden of proof is on the directors to show, subject to close scrutinty, tht the transactions were objectively fair to minority shareholders.

ONLY APPLIED WHEN FD IS OWED AND ACCOMPANIED BY SELF-DEALING.

1. Did the minority stockholders get what they were proportionally enetitled to?
2. Was there a corporate opportunity (apply four part testt)
3. Were the minority shareholders deprived of a coporate opportunity to the parent company’s benefit?

If not, use BJR standard

(Sinclair Oil Corp)

Question 8

What are the two standards of review?

Answer 8

Intrinsic fairness and BJR

Question 9

Business Judgment Analysis

Answer 9

1. Is the corporation incorporated in NY or DE? (Lawsuits cannot be brought for breach of duty of care)
2. Is the director’s decision protected under the BJR?
   a. Did the director make a decision or take ana ction that harmed the corporation?
   b. Was the director’s action cleansed by a majority vote of the informed shareholders, or can he show fairness?

(Ford Motor Co; Shlensky; Francis; Disney; Van Gorkum; Kamin)

Question 10

Delaware’s Spectrum of bad faith

Answer 10

1. Actual intent to harm the corporation
2. Conscious disregard for one’s responsibilities or business actions;
3. Intentional dereliction of duty (usually breaches duty of GF)
4. Gross negligence w/o malicious intent (usually does not breach the duty of GF)

(Disney; Francis; Stone see Caremark Claim)

Question 11

Interested Directors (BCL §713)

Answer 11

Transaction involving a conflict of interest or self-dealing are not automatically void. Can be cleansed if:
1. It is authorized by the majority of disinterested directtors (quorum vote) after full disclosur of thte nature of the conflict and the transaction (interested if she or a family member has a financial interest in the transaction or has a relationship with the other party to the transaction that might affect her judgment)

2. It is fully disclosed to the shareholders and then approved by them; or
3. the Key player show that it was fair and reasonable tto tthe corporation (a fiar transaction will be upheld despite no disclosure)

(Bayer)

Question 12

10b-5

Answer 12

1. A security was bought or sold using an instrument of interstate commerce
2. the information is non-public
3. D made a material misstatement or omission
4. the misstattement of omission was made with an intent to deceive, manipulate or defraud
5. there’s a connection between tthe misprepresentation or omission and the P’s purchase or sale of the security;
6. P relied on the misstatement or omission; and
7. There’s a causal connection between the material misrepresentation or omission and p’s loss

(Texas Gulf Sulpher)

Question 13

Partnership

Answer 13

1. Share in profits
2. PPF had veto power over financial decisions (joint control)
3. Ability to inspectt company’s finances
4. Option to buy-in

(Martin v. Peyton; Young v. Jones

Question 14

Partnership (Common Law)

Answer 14

1. Intention of parties;
2. Right to share in profits;
3. Obligation to share in losses
4. Ownership and control of the partnership property and business;
5. Community of power in administration;
6. Language of K
7. Conduct of the parties towards third persons;
8. Rights of the parties on dissolution

(Feinwick;

Question 15

What triggers reverse piercing?

Answer 15

Corporation has no assets, but shareholder owns share in other corporations. After P satisfies the unity or interest and fraud or injustice standards and pierces the corporate veil, then he essentially becomes a shareholder who can liquidatet the companies for cash.