Essay 3

Question 1

Under the MBCA, What is a DCIT?

Answer 1

A corporate transaction in which a director had knowledge and a material financial interest – implicates duty of loyalty

Question 2

When will a DCIT not violate a director’s duty of loyalty?

Answer 2

IF they were fair to the corporation

Question 3

What constitutes fair to the corporation?

Answer 3

Reasonable business purposes
2) comparable to expenses incurred by competitors

Question 4

Unless limited by share holder agreement/articles of incorporation, what do directors what can a board of directors do?

Answer 4

excercise all corporate powers.

Question 5

What does all corporate powers mean?

Answer 5

Make contracts/incur liabilities

Question 6

What must a board of director’s act get to be proper?

Answer 6

An affirmative vote by a majority of urector at a meeting where quorom present

Question 7

What is a board quorum under the MBCA?

Answer 7

Generally, a majority of corpo’s directors

Question 8

What qualifies as a material financial interest?

Answer 8

A financial interest in a transaction that would reasonably be expected to impair objectivity of director when authorizing.

Question 9

Under common law, what does a director decision with a material financial interest get treated as and get?

Answer 9

Self dealing and heightened judicial scrutiny.

Question 10

Under the MBCA’s safe harbor, when is a DCIT not subject to a judicial remedy?

Answer 10

If the transaction was approved by informed, qualified directors or share holders
OR
is shown to have been fair to the corporation

Question 11

For purposes of a DCIT, what is a qualified director?

Answer 11

One with out a material conflicting financial interest in the transaction and not related to the conflicted director.

Question 12

Under the MBCA, what qualifies as fair to the corporation?

Answer 12

Challenged transaction “as a whole was beneficial to corp after considering
fair in terms of director dealing
comparable to what may have been obtainable in an arms length transaction

Question 13

WHat could be argued to show fair to the Corp?

Answer 13

1) primary purpose was reasonable and contributed to biz success
2) They raised it properly at a board meeting
3) Trip was consistent with biz practices
4) Benefit to visit museums was incidental

Question 14

When can a shareholder generally bring derivative suit?

Answer 14

To vindicate corporate rights when directors have breached FDs to Corp.

Question 15

What is recovery limited to in derivative suits?

Answer 15

Recovery goes to the corporation and proceeds go to corporate assets

Question 16

When can a shareholder recover personally in a derivative suit?

Answer 16

corporation is in liquidation,
when corporate control has been sold, and
when the wrongdoers retain control and returning funds to their control would be inequitable.
But they only get their percentage of the Corp in damages

Question 17

Under the MBCA, what must a plaintiff be to bring a derivative shareholder suit? why?

Answer 17

A contemporaneous owner

align the plaintiff’s economic interests
with the corporate interest to be advanced by the diligent prosecution of the suit…. not doing it allows people to buy shares just to sue

Question 18

Assuming that Amy and Bill violated the duty of loyalty by having the
corporation pay for their prior trips to Germany, can Sharon bring a derivative claim to recover
from Amy and Bill the expenses paid by BC that related to their prior trips to Germany?

Answer 18

No. Even if Amy and Bill violated the duty of loyalty, Sharon does not have standing to
bring a derivative claim with respect to Amy’s and Bill’s travel expenses to Germany. She was not a
contemporaneous owner when the corporation paid these expenses.

Question 19

Assuming that Amy and Bill violated the duty of loyalty by having the
corporation pay for their Belgium trip, can Sharon personally recover from Amy and Bill all the
expenses for that trip paid by BC? ANSWER:

Answer 19

No. Although Sharon could bring a derivative suit on
behalf of the corporation claiming that Amy and Bill violated their duty of loyalty, any recovery
would be to the corporation and not to Sharon personally.

Question 20

Did Amy and Bill violate the duty of loyalty by having the corporation
pay for their Belgium trip over Sharon’s objection?

Answer 20

Yes. Amy and Bill violated the
fiduciary duty of loyalty to the corporation by having the corporation pay their travel expenses to
Belgium, unless they can show that the corporation’s payment of these expenses was fair to the
corporation. Here a strong argument exists that payment of their expenses was fair to BC.

Question 21

: Did Amy and Bill engage in a conflicting interest transaction by
having the corporation pay for their Belgium trip? A

Answer 21

Yes. The corporation’s payment of
Amy’s and Bill’s travel expenses for the trip to Belgium was a “director’s conflicting interest
transaction” (DCIT).

Question 22

: As directors of BC, did Amy and Bill have the authority to approve their
trip to Belgium at corporate expense? A

Answer 22

Yes. Amy and Bill, as members of the
corporation’s board of directors, had the authority to vote to have the corporation pay their travel
expenses to Belgium.