Class 5 Flashcards
Longman v. Food Lion Inc. (The Total Mix)
Facts: Food Lion worked employees overtime w/o pay.
They used unsafe (disgusting) food practices. They consistently represented that they were good to labor and used safe practices. Union disclosed poor practices in allegations. Dept. of Labor settled with Food Lion (fines). ABC aired a story about the problems.
I: were disclosures material? alter the total mix?
H: Disclosure about labor practices (not material)
Disclosure about food safety (not material)
Reasoning: practices about labor were known before the ABC undercover investigation aired. The labor settlement was only 2 cents per share. The PrimeTime Live broadcast added nothing to inform the market further. Unsanitary practices were only a few stores.
Truth on the Market Defense
The market incorporated accurate info despite presence of allegedly false info
investors were relying on market price
Investors could not have been harmed if market price was unaffected by misstatements
Is this decision the same as the Merck case?
The WSJ article isn’t important like ABCs show.
Wait, did the ABC broadcast really not include any novel info related to disclosures?
The court relied on the small number of stores in the ABC investigation. What about the small number of consumers in the Matrixx case?
Are allegations providing the same info as (1) company DISCLOSURES of labor practices or (2) SETtLEMENTS/FINES of regulators?
Can the total mix approach undermine disclosure policy when disclosure is dynamic? Shouldn’t a bunch of little bad disclosures sum to one big bad disclosure if part of a consistent pattern of behavior of managers? Should managers be able to smooth away their disclosure violations over time?
In the Matter of Franchard Corp
Facts: Glickman was in the business of syndication for real estate investments. Basically pooling money. Glickman had Glickman Corp issue three offers. He controlled the corp. with Class B shares. Glickman used the company like his own bank account, taking money in and out for personal investment, not corporate investments. Withdrawals were less than 1.5% of the assets.
I: were these withdrawals and other secret transactions material omissions?
H: the transactions were material.
Reasoning: of cardinal importance in any business is the quality of its management.
Glickman’s reputation was central to the firm
Control of the company could change due to pledges of stock (ownership is fundamental). Management evaluation is essential. Some privacy given up upon taking the role.
The Glickman court seems to pass the ball to state corporate law regarding the directors? Was this warranted?
Could Glickman’s actions also be seen as a breach of duty of care or loyalty that could be managed by state corporate law claim?
(Agency problems-reconciling) In Blackstone and Glickman, compensation and managerial behavior were given extra weight. Courts are concerned with bad actors and small transactions/incentives can reveal materiality, even with low observed values. Why did the court not seem concerned with poor managerial actions in Food Lion? Protecting investors vs. Consumers/labor? Was this a quasi-jurisdictional issue?
