Duty of Care

Question 1

In DE, there is a trend of __

Answer 1

opting out of fiduciary duties

Question 2

Tornetta was breach of loyalty for __

Answer 2

Musk and BOD

Question 4

Disney facts

Answer 4

O gets package with huge severance pay when terminated without cause only 14 months into K

Question 5

Disney plaintiffs argue that __

Answer 5

BOD consciously disregarded responsibilities to SH in order to please Eisner

Question 6

Disney holding

Answer 6

interim between loyalty and care (bad faith) but no bad faith in this case

Question 7

Disney says O didn’t breach loyalty in negotiating K because ___

Answer 7

not fiduciary until his first day as officer

Question 8

Ovitz and Musk difference in negotiating packages

Answer 8

Ovitz on only one side with give and take (risk of leaving established company)

Question 9

Ovitz didn’t breach loyalty by taking severance because ___

Answer 9

didn’t need to forego contractual promise just because he was a fiduciary (not his fault BOD didn’t calculate and forced out against his will)

Question 10

Ovitz may have breached loyalty in taking severance IF ___

Answer 10

fired for cause and pulled all strings to prevent that determination

Question 11

In Disney, the BOD not on the compensation committee didn’t breach duties because ___

Answer 11

giving committee power to make package in line with company charter and DGCL 141(c)

Question 12

DCGL 141(c) says that ___

Answer 12

committees have same power as BOD

Question 13

Disney found that the compensation committee didn’t breach duty of loyalty or care because ___

Answer 13

though package not perfect underlying logic enough to support BJR

Question 14

102(b)(7) exculpates ___

Answer 14

directors from monetary damages in duty of care claim

Question 15

Before 102(b)(7) Disney plaintiffs may have had care claim for ___

Answer 15

failing to ask questions about early termination possibilities

Question 16

102(b)(7) does not allow exculpation for ___

Answer 16

injunctions for better governance structures

Question 17

American Express case facts

Answer 17

Acquired company that wasn’t helpful so could either dump and sell at loss for tax benefit OR give all SH share in acquisition with inclined dividend

Question 18

American Express holding

Answer 18

Decision protected by BJR, all that is required is informed decision (discussed both options)

Question 19

American Express holds that the BOD is not required to ___

Answer 19

maximize SH value at every step

Question 20

Stowe facts

Answer 20

Ps plead bad faith because claim directors didn’t monitor company enough and company fined for money laundering

Question 21

Stowe holding

Answer 21

Duty of good faith not intermediate standard but violation of loyalty

Question 22

Stowe says it is ____ to not have monitoring system in place

Answer 22

utter dereliction of duty of loyalty

Question 23

Stowe says if monitor and choose not to do something only liable if ___

Answer 23

don’t consider at all or only care to squeeze out profits

Question 24

Caremark facts

Answer 24

Agents of the company committing crimes by pushing doctors to prescribe their drugs. BOD wants to settle after motion to dismiss denied. Ps want directors to pay money to company for fine payments to regulators + attorney fees + new governance mechanism

Question 25

Rule 23.1 Fed Civ Pro says that a derivative action can only be settled ___

Answer 25

with court approval

Question 26

Caremark holding

Answer 26

Inaction in bad faith is a breach of loyalty

Question 27

Caremark says inaction in bad faith = ___

Answer 27

duty to act + know it but couldn’t care less

Question 28

Caremark says if duty of loyalty is breached then ___

Answer 28

use entire fairness standard

Question 29

Caremark says BOD need not ___ but must ____

Answer 29

spy on company, operating monitoring system + update it (reassure from time to time still working)

Question 30

It is up to business judgement how to _____ monitoring system but must ____

Answer 30

design, have enough info to make decisions

Question 31

Caremark court says here there was ___

Answer 31

good faith effort to implement system but will approve the settlement

Question 32

If uninterested action then ____

Answer 32

duty of care –> presume directors acted with care –> generally rule out irrationality and waste

Question 33

The Caremark standard is ___

Answer 33

hard to meet and most cases set aside at motion to dismiss

Question 34

The problem with settlements is that they __

Answer 34

don’t push case law, keep it murky for company

Question 35

Why are public litigants helpful in pushing new case law?

Answer 35

care more about the law than the money

Question 36

A derivative action enables____ to bring an action

Answer 36

a single SH

Question 37

Chancellors oversee settlements to prevent )))

Answer 37

bounty hunting attorneys from finding SHs to extract money from companies and account for absentee SH

Question 38

In DE, if you go to BOD and make a demand you are ___

Answer 38

conceding that demand is not futile

Question 39

Two prongs of Caremark

Answer 39

utterly failed to implement any reporting system OR having such system consciously failed to monitor, disabling themselves of being informed

Question 40

Disney holds that _____ is the standard for bad faith that would be exception to 102(b)(7) exculpation clause

Answer 40

intentional dereliction of a duty

Question 41

Directors may exculpate themselves for ___ but not ___

Answer 41

duty of care, loyalty or good faith

Question 42

Under duty of care. directors can be personally liable only where ___

Answer 42

in failing to oversee operations knew they were not discharging fiduciary obligations

Question 43

Caremark principle is that inaction can ___

Answer 43

breach duty of care and of good faith in a way that is adversarial

Question 44

Caremark holds that failure to maintain a reporting system can be __

Answer 44

bad faith which can be duty of loyalty violation

Question 45

A classic two prong claim acknowledges that ___ BUT ___

Answer 45

BOD had reporting system, system brought info to BOD that BOD ignored

Question 46

Caremarks says that ___ so must put reporting systems in place

Answer 46

since Graham more regulation enacted

Question 47

Disney holds that BJR applies to __

Answer 47

actions not inactions

Question 48

To recover on a claim of corporate waste, plaintiffs must prove that ___

Answer 48

exchange so one sided that no business person of sound, ordinary judgment could conclude corporation received adequate consideration