Corporate Control Precedent

Question 1

What is enterprise theory of liability?

Answer 1

Suing multiple corporations within common control, usually w/ same enterprise, facilities, operations (e.g., 10 taxi corps, 1 owner = 1 enterprise).

Question 2

Officers can bind an entity w/r/t?

Answer 2

“acts arising in the usual and regular course of business”

Question 3

Board approval or ratification required for what type of contracts?

Answer 3

“contracts of an ‘extraordinary’ nature.”

Question 4

Is duty of care a procedural inquiry or merits-based inquiry?

Answer 4

Procedural, i.e. courts look at the decision-making process, not the decision’s substantive merits. It is based on the BUSINESS JUDGMENT RULE.

Question 5

What three things are required to satisfy the BUSINESS JUDGMENT RULE?

Answer 5

As long as managers are acting 1. in good faith, 2. on a reasonable belief, and 3) w/ reasonable care, they’re not answerable for their actual business judgments.

Question 6

In Smith v. Van Gorkom (1985), directors breached their duty of care b/c?

Answer 6

Breached duty of care “by their failure to inform themselves of all information reasonably available to them and relevant to their decision to recommend the Pritzker merger.”

Question 7

Can a corporation exculpate their directors from $ liability for breach of duty of care?

Answer 7

Yes, “a corporation can exculpate its directors from monetary liability for a breach of the duty of care, but not for conduct that is not in good faith.”-Brehm v, Eisner (2000)

Question 8

3 ways for D&Os to violate duty of loyalty?

Answer 8

1. self-dealing
2. violation of proportionality (i.e., asymmetrical benefits to similar SHs)
3. take corporate opportunities that should go to company

Question 9

In self-dealing, D&Os must prove _____ ______, which focuses on [1 &2]

Answer 9

Self-dealing reqs “entire fairness” to corp –> focus on 1. price and 2. dealing