Chap 7 - Director Duties Flashcards
Who owe fiduciary duties in public corps?
Directors, officers, and in some cases controlling shareholders
what is the duty of care for directors?
Applies to decision-making and oversight of corporate affairsby directors and officers.* MBCA 8.30(b): when performing their decision-making oroversight functions, directors need to become informed withthe care that a person in a like position would reasonablybelieve appropriate under similar circumstances
What is the BRJ?
Business Judgment Rule. it is a rebuttable presumption that there is no violation of the duty care when the directors have acted:
1. when making a business decision
2. on an informed basis
3. in good faith, and
4. in the honest belief that the action was done in the best interest of the company
if any of the above is not present, the BRJ does not apply
How does BRJ function?
When met, it is a protection for directors. When unmet, courts will ignore the defence when a director has engaged in fraud
What was the holding from Gagliardi v. Trifoods International?
An agent is not liable for decisions made by them actingin a good faith pursuit of corporate purposes (no matter howfoolish the decision may appear in retrospect) - when evaluating whether or not to apply the BRJ courts will focus on the decision making process. Were they informed and did they evaluate that information reasonably?
What is the exception to the BRJ?
When the person engages in EGREGIUS decision making. decisions that no reasonable business person would reasonably make
Who has the burden to prove or disprove the BRJ and what is the standard?
Since the BRJ is a presumption, it is upon the party seeking to rebut the rule (usually the plaintiff) to rebut on the standard of gross negligence which is hard to prove
What happens if the presumption in the BRJ is rebutted?
Burden shifts to directors to show entire fairness - fair process, fair price. Or, can seek shareholder ratification of the past decision
What was the holding form Smith v. Van Gorkom?
Gross negligence will causee the BRJ to be inoperable nd will not shed from liability
Can liability fro violating the duty of care be eliminated in the Charter?
Yes but not the duty of loyalty, not acts not in good faith or involving misconduct/knowing legal violations, improper benifits
What is Waste?
Unreasonable use of company assets. Ex one sided transactions, gifts to executives
Who is the corporation per the shareholder primacy norm?
Dodge v Ford Motor Co says that the shareholders are the corporation
What is the difference between stakeholder and shareholder?
Shareholder owns a part of the company. Stakeholder has Ouse other kind of investment/dependency upon the corporation. Ex. an employee, a vendor
What was the holding from eBay Domestic Holdings, Inc. v. Newmark?
When there is a poison pill, the Uneocal standard (was there a tenable takeover threat and did the board respond appropriately to it) only applies when there is an “inextricable” takeover threat not just a bid to protect corporate culture. If Unocal doesn’t apply then it is a BRJ test. In this case Unocal did apply
What is a public benefit corporation?
Created to generate public good.
