Bus Ass Flashcards
Actual Implied Authority
- P authorizes A to act
- A takes necessary, reasonable steps to carry out P’s instructions
- P is bound
Implied Apparent Authority (P + T)
- P does something that would permit T to think A was authorized to act for P
- Exists only if T’s belief is reasonable
- Look for manifestation of assent or intention (written/spoken/conduct)
Undisclosed P
- P is undisclosed if, when A and T interact, T has no notice A is acting for P
- P liable for A’s acts if w/in scope of authority typically given to an A w/ similar duties, regardless of limitations P imposes on A
Estoppel
- P negligently or intentionally causes T to believe his A has authority to act that is actually beyond his authority
- T detrimentally relies on P’s conduct (must be transaction)
- P is estopped from denying A’s authority
Agent’s Liability on the K
- If A makes K on behalf of partially/undisclosed P - is a party to K
- Test: A must provide actual knowledge (or reasonable man equivalent) to T, not enough that T has means to ascertain identity on his own
Agent IC
Has agreed to act on behalf of P but not subject to P’s control over how the result is accomplished (the “phys conduct” of task)
Master-Servant relationship exists where:
servant has agreed to work:
a) on master’s behalf; and
b) subject to master’s control/right to control the manner in which job is performed (as opposed to result alone)
master-servant test
control of day-to-day operations, ex:
• daily reports, financial supervision, hours of operation, control of employees.
• duration, control, risk of loss, & return
For RS to apply, employee must have committed the act w/in course and scope of employment:
(scope of employment factors)
- authorization to act by employer
- Time, place, purpose of act
- commonly performed by employees? extent of departure from normal methods?
- Extent to which the employer’s interest + employee’s interest is involved
- act reasonably foreseeable? (doesn’t have to be serving employer purpose)
Liability of P to T in Intentional Torts - (Scope of Employment)
Generally, intentional torts outside scope unless interfering w/ job
Liability for Torts of IC - General Rule and Exceptions
Gen, P is not liable for acts of an IC. But vicarious liability could exist where:
- P retains control over manner/means of doing the work
- P hires incompetent or insolvent contractor
- Activity contracted for is inherently dangerous
Fiduciary Obligations of Agents During Agency: Duty of Loyalty
- No competing w/ economic interests
- No misappropriation of bus opportunities
- disclose all material info
- not to acquire material benefit from T in connection w action taken on behalf of P or thru A’s position (secret profit. remedy: disgorgement)
Undisclosed P: 2nd Rest
- Inherent agency: power of A derived solely from agency relation and exists for protection of persons harmed by/dealing w/ a servant or other A
- UP liable for acts of A “done on his account, if usual or necessary in such transactions, although forbidden by P” (usual + customary in industry)
- CA and DE still use aspects
Undisclosed P: 3rd Rest
P liable to T if:
- T is justifiably induced to make a detrimental change in position by A acting on P’s behalf and w/o actual authority if
- P, having notice of A’s conduct, did not take reasonable steps to notify T of the facts
Factors ct considers in determining if implied partnership exists
- intention of parties
- right to share in profits
- obligation to share in losses
- ownership/control of P prop/buss
- community of power in admin
- language in the agt
- conduct of the parties towards 3rd persons
- right of parties on dissolution
Share in profits is prima facie evidence of partnership (UPA), but no such inference will be drawn if profits were received in payment:
- debt by installments
- wages or rent
- annuity to widow
- interest on a loan
- consideration for sale of a good will of a bus or other prop by installments
Partnership by Estoppel (equitable remedy)
Gen R: not P to each other = not P to T
However, person who reps himself (or permits another to rep him) to any1 as a P, is liable to any1 who on the faith of that rep has given credit to the actual or apparent P
General Standards of Partner’s Conduct (RUPA).
A partner’s duty of loyalty to the partnership and other partners is limited to:
- trustee for any prop, profit, benefit; winding up while acting w/in scope of P
- refrain from dealing w P on behalf of/as an adverse party
- refrain from competing w P before dissolution
* DoL may be contracted around in P agt*
Partner’s Duties to One Another: Duty of Care
• limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law
• obligation of GF + fair dealing
cannot be contracted around
Joint venture is like a P, but limited in scope/duration. JV is found when:
- contribution made by each party
- parties share a propriety interest and mutual control over prop
- agt for sharing of profits; and
- agt showing JV exists
• P principles of loyalty/care apply
Rights of P’s in Mgmt - UPA
- In absence of agt to the contrary, all P’s have equal rights in mgmt and conduct of the P (1 P = 1 vote)
- Any difference arising as to ordinary matters connected w the bus may be decided by a majority (prob: when only 2 P’s there can be no majority)
a P is dissolved on application by a partner, by judicial decree that:
- econ purpose of P is likely to be reasonably frustrated
- partner misconduct; or
- P agt cannot be carried out
If P at will, a partner may dissolve
- in good faith and with express notice to other partners
- cannot dissolve to gain personal benefits for yourself, unless u fully compensate co-partner for his share of prospective bus oppurtunity
UPA: if there’s a wrongful dissolution, each partner who hasn’t caused it gets
- right against each P who caused dissolution damages for breach of K
- right to continue to use bus in same name/possess P prop during that time (provided dissolving P is paid value of his interest - damages recoverable)
Sharing of Losses (CA)
- When no agt + both contributed capital: losses are divided equally, w/o regard to amount each partner contributed.
- Where 1 capital/1 labor, rule not applied b/c P contributing labor takes loss in form of lost labor. (doesn’t matter if $ guy helped w labor too - as long as service remains service only)
Sharing of Losses - UPA
profits shared equally and losses are shared in proportion to each P’s share of the profits.
doesn’t matter if 1 P didn’t contribute capital.
A buy-out, or buy-sell, agreement is an agreement that
- allows a P to end relationship w other Ps and receive a cash or some assets of the firm, in return for her interest in the firm
- P cannot seek judicial dissolution t bypass a buy-out agt (ct uses formula in agt)
- rec for price: 1 P sets price, ur option is buy or sell - no discussion. way to deal w/o appraisers.
“de facto” corp
hasn’t complied w all req’ts but may’ve sufficiently complied to grant corp status. Invalid corp may be treated as de facto corp if incorporators:
- tried to form in GF
- had legal right to do so AND
- acted as a corp
Corp by Estoppel
if req’ts not sufficiently complied w, ct may estopp T from attacking the entity as an equitable remedy. Granted if principals:
- thought it was corp all along
- would now get windfall if status denied
PCV (K):
Same elements as tort PLUS fraud or manifest injustice
Rationale: duty to investigate who ur contracting with
In order to PCV: (tort)
such UNITY of interest/ownership tht separate personalities of corp/individual no longer exist
what does “promote injustice” and “sanction fraud” mean?
- Promote injustice: unless veil pierced, some wrong beyond collector’s inability to collect would result. some element of unfairness akin to fraud/deception or existence of compelling public interest
- sanction a fraud - intentional wrongdoing
SH derivative actions: What can SH sue for?
- breach of fid duty by officer/dir
• in order to sue, SH must show injury to corp AS A WHOLE
• only $$ damages; goes to all SH’s in proportion of stock
SH sue in equity against a corp to compel it to sue a 3rd party
- b/c SH cannot sue 3rd party directly
- but SH suffers a derivative loss b/c of 3rd party
- SH made whole if corp recoups losses (- legal fees)
Beware of BJR; A bad decision is not necessarily a betrayal
- Decisions must be so bad as to be considered a waste of assets, or negligence.
- Unreasonable/bad decisions not enough; gen policy is to keep bus decision w/in bus/ out of the courts
Demand: when is this excused?
req’t excused when demand futile:
- majority of board has material interest
- majority dominated/controlled by wrongdoer; or
- challenged transaction not valid bus judgement
Demand in DE: π must alleged with particularized facts that create a reasonable doubt about:
- independence of board
- disinterestedness of directors to trans
- whether challenged trans is otherwise product of invalid exercise of bus judgmt
• Board rejects: must show violates BJR. Absent rare situation (fraud, arson, etc) its going to be difficult to move forward.
• argue futility!!
NY Approach - Barr Test -
demand excused bc of futility when complaint alleges w PARTICULARITY:
- majority of board is interested in challenged transaction
- board didn’t fully INFORM themselves about trans to extent reasonably appropriate; or
- trans so egregious on its face it couldnt have been product of sound bus jugmt of directors
• can make demand then go to ct
NY Approach - When corp brings in special committee
- committee is disinterested directors to review affairs = triggers BJR so ct doesn’t review substantive decision.
- but will inquire into adequacy + appropriateness of investigative procedures and methadologies
DE: SLC
- burden on corp to show GF + reasonable investigation..
- If satisfied, ct does independent investigation of the substance of the claim (applying their own bus judgment) to make determination
• If independence of SLC is called in Q, then its recommendation is invalid
To render a director unable to consider demand
a relationship must be of a bias-producing nature. Allegations of mere personal friendship standing alone are insufficient to raise a reasonable doubt about a directors independence
Demand Plan of Attack
A. If required, (DE) - BJR applies so π almost always loses
B. Excused?
• No SLC → π proceeds
• Settlement → reviewed by cts to make sure fair
• SLC → π probably loses
C. When is demand excused?
1. Π meets burden of reasonable doubt of dir disinterested/independence
2. P must plead w particularity
Discussing Demand on Final Exam
“discuss MERITS of a derivative suit” = NOT demand. “merits” can be about fid duties
If says nothing as to merits, maybe demand.
Charitable Contribution by a Corp
- corps can make donations, regardless of specific corp benefit (but the basic purpose of a business corp is to maximize profits)
- ask: were dir acting in best interest of corp? decisions motivated by valid bus purpose are given great deference
LLC: Operating Agreement
- controls if no conflict w a mandatory statute
- even if not signed by all parties, it can supersede as long as not illegal. parties mustve had intent to be bound by agt
- members cannot be liable for breach of fid duties where agt says members have no duties other than those in agt
LLC will dissolve upon:
- exp of any period of duration stated in articles
- consent of all members
- death, retirement, resignation, bankruptcy, incompetency, etc. of a member unless remaining members vote to continue bus; or
- Judicial decree or admin order dissolving LLC for violation of law
• personal liability can follow if member fails to est she took appropriate steps to shield herself from liability for co debts following dist of assets
LLC Fiduciary Obligations
- members owe duty of care to LLC + members
* duty of loyalty to other members can be contracted around in agt
Duties of directors - General Rule
If the directors have avoided any conflict of Interest (DOL) and if they have gathered information and thought about the problem they face (DOC), then courts will not second-guess them (BJR).
Corp Fiduciary Duties: DoC standard
- “neglect” req’d for an action against dir = neglect of duties (malfeasance, nonfeasance, uncon executed); not simply misjudgment (ex: robo signing)
- duty to have a decision making PROCESS thats thoughtful/probative
In response to VanGorkom - DE 102(b)(7)
- allows corp to incl in certificate of incorp a provision eliminating/ limiting personal liability of a director
- SH must vote in
- only for directors; officers cannot get immunity
DE 102(b)(7): Exceptions
- dir breach of DoL
- acts/omissions not in GF (intentional misconduct, knowing violation of law)
- act relates to payment of dividends, or
- transaction where dir gets improper personal benefit
How much should a director know of their business? (directorial duties)
- keep informed about activities of the corp
- be alert for misconduct and have a duty to look for it
- does not require detailed day to day operation, but rather general monitoring of corp affairs and policies
DoL: interested transactions and safe harbor created by DE law
• Usually = prima facie conflict of interest, but:
1. if material facts as to dir relationship/interest + K/trans are disclosed/known to board
2. board authorizes in GF by majority vote of disinterested dir = ok.
Ct then reviews under BJR
DoL: Directors and Managers (Bayer v. Beran)
Test: burden on dir to prove GF trans + inherent fairness from viewpoint of corp. If K is fair, its valid even if disinterested dir haven’t formally ratified.
• BJR yields to DoL to avoid fraud. Gen SH stuck bc BJR but if SH can allege conflict of interest = extra scrutiny. Burden shift to ∆ to prove conflict doesnt affect BJR (use Guth test for “unfair”)
General Rule for Duty of Loyalty
- do not be in conflict of interest
- do not misappropriate bus opp [corp opp doctrine]
- do not compete w the bus
- do not lie, cheat or steal
Guth Test (balance all) [corp opportunity doctrine - used to determine whether a conflict is unfair]
- corp fin capable of exploiting opp?
- corp interest or expectancy in opp?
- conflict between fid duties to corp and self-interest of dir as actualized by exploitation of opp?
- in line of bus and of practical advantage to corp?
DoL: Dominant SH
Must have relationship w fid duty. Dom SH owe to corp + min SH.
1. no self dealing - BJR
2. prima facie conflict on interest? self dealing? intrinsic fairness standard
• burden on ∆ to prove trans were objectively fair
• self dealing - parent on both sides of trans w its subsidiary
DoL: Ratification. 2-Part Wheelabrator standard
- If deal w dir ratified by disinterested SH, π must show waste
- If deal w controlling SH ratified, π must show unfair
• burden on ∆
• if majority of min SH vote then burden shifts to π to show unfair (terms so unequal as to amount to a gift or waster of corp assets)
Obligation of GF (compensation)
- BJR even if not “best practices” - but decision making process needed
- Bad faith: actual intent to do harm or intentional dereliction of duty. (gross negligence isn’t bad faith)
Necessary conditions for director oversight liability (obligation of GF):
- dir utterly failed to implement any reporting/info system/controls; or
- if they did, dir consciously failed to monitor its operations, thus disabling themselves from being informed of risks/probs requiring attn
• standard: whether dir knew they werent fulfilling duties = breach of DoL to corp by failing to act in GF. Fwd looking, cant use hindsight to determine whether dir exercised responsibilities in GF
Investment K
k, transaction, or scheme whereby a person invests his $ in a common enterprise & is led to expect profits solely from the efforts of the promoter or 3rd party
Characteristics associated w/ common stock:
- right to receive dividends contingent upon apportionment of profits
- negotiability
- ability to be pledged
- conferring of voting rights in proportion to shares owned
- capacity to appreciate value
Securities Act imposes 3 basic rules: (registration process)
- security cant be offered for sale thru mails/means of interstate commerce unless registration stmt filed w SEC
- securities cant be sold until stmt becomes effective
- prospectus must be delivered to purchaser b4 sale
factors in determining whether offering is private (and thus exempt)
- # offerees and relationship to each other + issuer (cannot be private w/o this. must be such that offeree was furnished w or had access to info that wouldve been disclosed in stmt)
- # units offered
- size of offering
- manner of offering
Securities Act Civil Liabilities: §11
liability on certain ppl for material misrepresentations or omission in an effective prospectus, unless ∆ can show they had reasonable grounds to believe stmts were accurate
§11 - 12: Due Diligence Defense
∆ wont be liable foe material false stmts or omission in registration stmt if, after reasonable investigation, he had reasonable grounds to believe, the assertions were true + no omissions of material facts. If investigation cursory he’ll be liable.
TSC Industries Standard for “materiality”
- “material” limited to situations where a reasonable person would attach importance in determining choice of action in trans in Q
- TSC: must be a substantial likelihood that disclosure of ommitted fact would’ve been viewed by a reasonable investor as having significantly altered total mix of info made avail
Option K
- k gives holder right on certain day/circumstances to sell/buy stock (set price/date)
- sell = “put”
- buy = “call”
- once window closes its over
PCV (alter ego) - In determining whether there is a unity of interest, the court will look to the following factors:
- failure to maintain adequate corp records or comply w corp formalities
- undercapitalization
- commingling of funds
- one corp treating the assets of another corp as its own
Rights of the Partners in Management: If differences cannot be decided by a majority vote, then…
Even so, a partner has the ability to bind the P on the ordinary course of business unless the P has deemed:
- the partner shall not have such authority and
- the 3rd party has reason to know that no such authority exists.
An individual partner’s rights in the partnership consist of three aspects.
- rights in specific prop (each P has an equal right to possession)
- partner’s interest in P is his share of profits/surplus, which is an individual interest
- right to participate in mgmt of the P
Partnership: Opting Out of The Duty of Loyalty
No breach of DoL if there’s full disclosure by a P who deals w P prop. Partner must:
1. disclose all facts surrounding trans to other P’s and
2. secure every P’s approval
• P’s may vary or ratify violations of the DoL if doing so isn’t manifestly unreasonable
PCV: Parent - Sub
11 “totality of the circumstances” factors but the main point is: make sure sub is its own! no commingling!
SH Derivative Actions: Direct v. Derivative
To determine, cts look:
1. who suffered alleged harm (π or corp?)
2. who will receive benefit of any recovery (corp of SH as an individual?)
• If direct - π can proceed
• If derivative - π must post bond + either seek demand excusal or make demand to board
Corp Fiduciary Duties: Duty of Care - In general…
- Directors must exercise reasonable care, prudence, and diligence in the mgmt of corp.
- Ct will hold a dir liable for breach of DoC if dir knew/reasonably should’ve known of the situation + could’ve done something about it
- Absent fraud, self dealing, bad faith, oppressive conduct - ct doesnt interfere w bus judmt of directors
SH π challenging a boards decision (corp fid duties flow chart)
- π burden to rebut bus jdmt (breached 1 of triad)
- π fails - BJR
- π wins - burden to dir to prove fairness of trans. If done
- burden to π - trans constituted waste. fails = BJR
- π proves - case proceeds out of pleading stages
If it is unclear as to whether the property is a security, the courts ask four questions:
- is it specifically mentioned in the act?
- type of interest commonly known as security?
- investment k or participation in a profit making venture?
- need for protection under the act?
Securities Act Civil Liabilities: §12
Any person who offers or sells a security by use of means of interstate commerce and makes an untrue stmt of material fact in connection tw, and who cannot sustain burden of proof that he did not know and in the exercise of reasonable care could not have known the truth, is liable to the purchaser of such security.
Corp Insiders: Insider Trading - Abstain or Disclose Rule
- Anyone in possession of material inside info must either disclose or abstain
- whether facts are material when they relate to an event: balance indicated probability event will occur vs anticipated magnitude of the event in light of the totality of companys activity
- limited to situations reasonably certain to have substantial effect on market price of security if disclosed
Fiduciary Flow Theory (outsiders trading on inside info)
- tipper breaches fid duty to SH
- tippee knows/should’ve known of breach
- tipper must receive a personal benefit from the disclosure
Fiduciary Flow Theory - Dirks fn:
outsider can become “constructive insider” w fid duty to SH bc they were hired into a special constructive relationship (underwriter, accountant, lawyer or consultant working for corp) & received corp info legitimately
Misappropriation Theory – U.S. v. O’Hagan
- Tippee must breach fid duty to tipper
- Tippee does not disclose the trading to tipper
- Tippee derives a personal gain
SEC Rule 14e-3(a) Violation
prophylactic blanket provision in the tender offer context. Doesn’t require scienter; only applicable to publicly registered securities (individual trades on basis of material non public info concerning a pending tender offer)
Short-Swing Profits Rule 16(b)
- officers, directors, SH w 10% stock
- buying and selling can be unrelated - but always look for lowest purchase price and highest sale price
- w/in 6 mo period
A corporation may purchase insurance or indemnify its directors and officers. If successful, ∆ may be entitled to indemnification if
- he acted in gf
- for purpose which he reasonably believed to be in best interests of corp; and
- he has no reason to believe his action was unlawful
Circumventing GF requirement for indemnification and insurance
Corp may circumvent by purchasing a dir and officers liability insurance policy to cover situations in which corp could not indemnify them. funds could be advanced for attorney fees (must be reasonable)
In general, if a suit is settled before judgment, the officer or director may be indemnified so long as:
- settlement made w ct approval; and
- ct finds ∆s conduct fairly and equitably merits indemnification
• most statutes prohibit indemnification by corp if ct found ∆ breached a duty
A SH may propose an action if
- he would be entitled to vote at SH meeting and
2. hes a SH at time of proposal
If management opposes the shareholder approval, it must file the proposal and the reasons for opposing it with the SEC. Management may properly omit subjects, if:
- violates law
- violation of proxy rules
- personal grievance/special interest
- deals w operation thats >5% of C operations (irrelevant)
- C lacks authority/power to implement
- deals w ordinary course of bus
- relates to an election
- conflicts w C proposal
- already substantially implemented
- substantially duplicated by another
- resubmission of former
- relates to specific amount of dividends to be declared
Shareholder Inspection Rights
- SH or tender offeror can insist issuer provide list of security holders or mail communications to them
- must furnish affadavit inspection is for bus purpose only + he has not been involved in sale of lists w/in last 5 yrs
- may only inspect books if can show proper purpose
Shareholders may transfer their legal right to vote to another under an agreement.
- Voting trust - SH transfers legal right to vote to trustee, who has right to vote for life of trust
- Pooling agt - SHs exchange promises to vote in specific way
CHC: Voting Agreements Controlling Directors Votes
Gen: SH cannot make agt as to how to vote 4 directors. Dir’s must be free to act independently in their roles + faithfully execute their fid duties to C.
However, when substantially all SH in a CHC enter into a SH agt that provides for actions to be taken by the C, cts will allow
CHC: Wilkes Doctrine
a. SH’s in close corps owe each other a duty of strict good faith;
b. If challenged by a minority SH, a controlling group must show a legit business objective
c. Π minority SH can still prevail if she can show that controlling group could’ve accomplished its business objective in a manner that harmed her interests less
Abuse of Control: Buy Back Remedy. if a SH has been frozen out by the majority of the SHs, then the best remedy is a buy back at a fair price by the C. A buy back can occur under four situations:
- articles/by laws allow for at stated price
- SH petitions ct for involuntary dissolution in event of abuse or deadlock
- fundamental change in C structure
- breach of duty
Private Actions for Proxy Rules Violations
- Causation and materiality of false stmt in proxy solicitation
- to be material, vote must’ve been essential (so cant sue u if vote wouldn’t have made a difference)
Transfer of Control: In general
- SH may sell stock to whoever for however much $.
- However, if you’re usurping a corp opportunity or looting company assets then controlling SH cannot sell & purchaser cant buy at premium
CHC: When dissolution is more equitable than a buyout. Sec 273 allows for equitable dissolution by the court when:
- 2 50% SH
- must be engaged in a JV
- must be unable to agree
Transfer: Naked Sale of Office
- you can sell a control block at premium but you cant sell board of directors w/o that control block. Fid duty to all SH, not just controlling SH
- Burden on ∆ to show the interest transferred did not carry actual control, and the promise to transfer was improper
Defacto Merger Doctrine
Even if a deal is structure not to be a statutory merger, a court will fashion the transaction to be a statutory merger. Thus, a sale of assets for stock, followed by the dissolution of a company has the same substantial effect as a statutory merger because the bidder company is receiving all the assets of the target company in exchange for the bidder’s stock and the target disappears at the end
Freeze-Out Mergers
- If sole purpose = freezing out a minority SH ist an abuse to corp process. Even if the merger has a legit purpose, the controlling SHs bear burden to demonstrate its entire fairness.
- To demonstrate: must show that they were dealing fairly and obtained a fair price. To deal fairly, the board must disclose all material info. To obtain a fair price, board must show they used anyone of the valuation methods typically used by the fin community.
Tender Offers: 13(d) early warning system, provides that disclosure stmt must be filed by:
anyone who acquires
- more than 5% of equity registered under Exchange Act
- w/in 10 days after they cross the 5% threshold
Tender Offer: “person”
- when 2+ ppl agree to act as a group to acquire stock they count as 1 person
- if at group formation they have more than 5% - majority says they have immediate filing obligation
Tender Offer: Key required disclosures
- identity
- plans + intentions (incl whether u intend/considering seeking control of issuer)
- any k, understanding or relationship with respect to securities of the issuer
Tender Offer §14 - just straight up offering to buy more than 5%: req’d disclosures
- publicly announce bidders identity, targets identity, amount of securities bidder is offering to buy, price
- must file disclosure stmt day offer commences
- info must also be disseminated to target SH by newspaper pub or mailing (mgmt either mails or gives NOBO+CEDE lists)
Tender Offer §14 - Incumbents response
mgmt must state whether they support, oppose, or why unable to make a decision and summarize reasons for their position
Tender Offer §14 - Withdrawal Rights
- first 15 days and anytime a competing bid is made
* max 20 bus days for offer period + 10 day extension for material changes
Tender Offer Litigation
- Is there an implied private right of action under this statute at all? (yes to all williams act)
- assuming there is, does π have standing to assert in this case? yes if:
a. target or bidder seeking equitable relief
b. target SH for both equitable + monetary relief
When the directors face the threat of a corporation takeover and they repurchase corporation stock as a result,
=conflict of interest bc tactic may be invoked in order for officers to stay in office.
• burden on ∆ board members to prove acted in GF in interest of SH + not for personal reasons. must show takeover was threat to corp policy
Takeovers: Unocal
board may engage in the defensive measures so long as it is in the best interests of SH, board isn’t losing control, or SH interests remain fluidly aggregated. If so cts will refer to BJR if
- ∆ board had reasonable grounds to believe danger to corp policy/effectiveness; +
- defensive measures were proportionate under circumstances
Under Revlon, a board must cease using defensive measures if:
- the board is losing control
- the transaction is resulting in the break up of the firm, or
- the minority shareholders are being disenfranchised.
• If one or more of the three circumstances are taking place, then the board must seek to maximize the value that a shareholder will receive for his share.
Revlon: To assess the value, a board may:
(1) determine, by virtue of their positions, the true intrinsic value of the shares;
(2) have an investment banker right an opinion letter;
(3) hire an investment banker to seek bids; or
(4) auction off the company to the highest bidder.
Rule 10b-5 elements
- Insider
- Materiality (whether reasonable person would attach importance in determining his action in trans)
- Reliance (actual, effect on market, non disclosure)
- Causation (sell/lose)
- Purchase or sale
- Scienter (intent to deceive, manipulate ot defraud)
