Corporate Governance

Question 1

Schreiber v. Carney

Answer 1

Facts: Tx Int has difficulty getting landing rights on east coast, plan to merge into Tex Air but problem is Jet Cap (controlling S/H) has right to buy more shares in Tx Int at fixed price (lower than merger price) BUT Jet doesn’t have the $ right now. So they say, Tx Int loan us the $ to buy the shares (interest rate 5%) and we promise not to vote against merger.
Issue: This is…a bribe (loan for vote) but everyone thinks it’s a good idea (BOD mails to S/H in proxy statement), so is this allowed? Hold: Ct says, this is merely a voting agmt supported by consideration! New Standard! Evaluate case by case for object or purpose Rule: Case-by-case review for Intrinsic Fairness. IF maj. S/H vote after full disclosure, will satisfy fairness. Ct will void vote if there is Fraud or Disenfranchisement of other S/H if it is intrinsically unfair – object or purpose.
NOTE: This means Ct looks to see if the deal benefitted ALL S/Hs, not just the one selling the vote.
Procedural NOTE: If you want to sue w full disclosures you have to sue right after you get proxy materials but BEFORE the vote
Efficient? We don’t like bribes bc its 2 ppl dealing under table to screw others unless there is full disclosure & S/H approve it

Question 2

Virginia Bankshares. Inc. v. Sandberg(SCOTUS

Answer 2

Facts: Bank wants to get rid of S/Hs so merge banks and have larger VA bank, S/H (15%) get $42/share (cash). BOD says “our
opinion is that price is fair” and it ain’t a materially false statement
Issue: Does it matter if its an opinion?
Hold: No. It is material if a reasonable S/H would consider it when voting. BUT, we can’t have enDGCLess litigation so you need to have had intended to mislead on underlying facts (need evidence to show BOD thought it wasn’t fair price). Here, Ct knew BOD didn’t believe it was fair bc they saw it as $60 value.
Rule: Your opinion is enough if a reasonable invertor would infer that opinion is based on FACTS.

Question 3

Mills v. Electric Auto-Life (case used in VA Bankshares for standard)

Answer 3

• Causation of damages by a material proxy misstatement could be established by showing that minority proxies necessary and sufficient to authorize the corporate acts had been given in accordance with the tenor of the solicitation
• Court described the casual relationship by calling the proxy solicitation an “essential link in the accomplishment of the transaction”  vote has to be sufficient to matter to the outcome

Question 4

Schnell v. Chris-Craft Industries, Inc

Answer 4

o Facts: Some SHs wanted to replace the existing directors at the next annual meeting—the current directors decide to call the meeting before the holidays so that the insurgents wouldn’t be able to submit their SEC info before the proxy card was sent.
o Holding: corporate directors may not act with the sole purpose of obstructing SH action, even if the methods are legally permissible.
 BOD has a duty to act in the best interest of the SHs
 Court is very protective of SH rights – this is inequitable action by the BOD
• Reasoning: all states view voting as special
 Inequitable action does not become permissible simply because it is legally permissible
• Directors and Officers

Question 5

Malone v. Brincat (Del 1998

Answer 5

“Whenever directors communicate publicly or directly w S/Hs abt the Corp’s affairs, w or w.o request for S/H actions directors have fiduciary duty… to exercise Care, GF, and Loyalty…the sine qua non of director’s fiduciary duty is honesty.”

NOTE: n this case, the Ct said that because S/H were suing under SEC Rule 10b-5 (anti fraud provision regulating misleading disclosure in public markets and DID NOT sell their shares, they were not harmed by the false information from the BOD. The π was given the right to re-plead the claim as a derivative or individual claim.