Important Cases

Question 1

Dirks v SEC

Answer 1

A person will be a TIPPEE and will be liable for insider trading if he knows the source of the tip has violated a fiduciary obligation to the issuer.

• Tipper in this case breached no duty bc there was no fiduciary gain.
• -Dirks also held that a person can become a “temporary insider“ when they have entered into a special confidential relationship in the conduct of thbusiness of the enterprise and are given access to information solely for corporate purposes.” e.g., “an underwriter, accountant, lawyer, or consultant.”

Question 2

Donahue v Rodd Electrotype/ Brodie v Jordon

Answer 2

A majority sh may owe a fiduciary duty to minority Sh in a closed corporation.

Question 3

Borak

Answer 3

Individuals may have an implied private right of action when they have been injured by a violation of proxy rules

Question 4

Smith v Van Gorkom

Answer 4

Business Judgment doctrine shields directors/officers only if, in reaching a business decision, they acted on an informed basis, availing themselves of all material information reasonably available.
OR. Directors have a duty to inform themselves adequately before making any decision.

Question 5

In re Caremark International Derivative Litigation

Answer 5

Suggests that a board may have a duty to install corporate information and reporting systems to detect illegal behavior.

Question 6

Bayer v Beran

Answer 6

Director hired wife as singer, duty of loyalty was implicated, and the directors had to prove validity of actions, which they did

Question 7

US v O’Hagan

Answer 7

Misappropriation theory- Duty is to source of information. Although not liable under 10b5. liability under 14e3 does not require a breach of duty to the tipper

Question 8

Chiarella

Answer 8

Liability for insider trading under rule 10b5 is conditioned on a breach of a fiduciary duty owed to the source of information.
Must disclose information or refrain from trading.

Question 9

Ringling Bros.

Answer 9

Voting agreements are ok so long as not illegal, and as long as you dont violate fid duties to other SH

Question 10

McQuade v Stoneham

Answer 10

Voting Agreements that limit directors to exercise ind judgment are invalid as against public policy

Question 11

Wilkes v Springside Nursing Home

Answer 11

A freeze-out is ok as long as you have a legitimate business purpose

Question 12

Nixon v Blackwell

Answer 12

A minority sh must contract their rights in Delaware. No duty unless negotiated.