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Shareholder Actions Flashcards

1
Q

A derivative action is when ___

A

company was harmed

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2
Q

A direct action is when __

A

SH rights impacted

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3
Q

Generally the company gets the remedy from a derivative action unless ___

A

sometimes if controlling SH whose conduct led to suit then remedy to minority SH

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4
Q

To have a direct suit, you need more than just ___

A

share price adversely affected

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5
Q

The pleading requirements for a derivative action are that _____

A
  • fairly and adequate rep all SH interests
  • SH now AND at time company harmed
  • plead facts with particularity (including a demand or show demand futile)
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6
Q

If filing derivative action over merger, the SH must have either _____ OR ____

A

abstained or voted against, directors misrepresented info

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7
Q

Disney plaintiffs argued Disney harmed because ___

A

expensive and risky compensation package

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8
Q

Examples of derivative actions

A

Rales, Aronson, Zuckerberg

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9
Q

Three examples of SHs rights adversely affected

A
  • forced to hand over shares for unfair price
  • denied dividends others got
  • voting rights denied
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10
Q

Example case of a direct action

A

Van Gorkom

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11
Q

All securities actions are ___ suits

A

direct

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12
Q

Why are securities suits direct suits?

A

affect value of the shares because of lie

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13
Q

The DE universal demand rule is that if you ___

A

make a demand conceding BOD can make sufficiently disinterested decision

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14
Q

The rationale behind derivative suits is that the SH are ______ so must be able to show ___

A

taking away job of BOD by litigating, why not able to make disinterested decision

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15
Q

Zapata facts

A

After motion to dismiss denied new BOD created special litigation committee that says suit not in company’s best interest

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16
Q

Zapata held that the Chancellor __

A

uses judicial judgment to decide whether to terminate litigation if SLC

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17
Q

Zuckerberg facts

A

Z tries to re-classify shares he sells as non-voting later abandons that plan. Facebook sued for re-classification attempt

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18
Q

Zuckerberg plaintiffs are complaining because ___

A

rec-classification plan was expensive and harmed company through suit and settlement

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19
Q

Issue in Zuckerberg

A

Was demand futile

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20
Q

Zuckerberg held that the majority was ___

A

not conflicted so demand not excused

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21
Q

Zuckerberg held that there is a ____ AND ___

A

three prong test for demand excusal, go director by director until have a majority to meet demand excusal

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22
Q

Three prongs of Z test

A
  • did director receive material personal benefit
  • does the director have a substantial likelihood of liability if case goes forward
  • Does director lack independence from someone who falls under 1 or 2
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23
Q

Zuckerberg clarifies ___

A

but doesn’t overrule Aronson

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24
Q

Why didn’t prong 1 of the Z test lead to demand excusal?

A

Nobody except Z got material personal benefit

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25
Why was demand excusal not met under prong 2 of the Z test?
- Only three loyalty breaches (not enough for majority - even if duty of care violation no substantial personal liability because of 102(b)(7) -
26
Why was demand excusal not met under prong 3 of the Z test?
Not enough of remaining four directors (without 1 or 2 issue) beholden to anyone with a conflict
27
Dorsey facts
Block, payment processing company, acquires TIDAL music streaming company in financial trouble because Block and TIDAL CEO good friends. Merger committee asks lots of Qs about the business
28
Plaintiff argument in Dorsey
Committee acted in bad faith because it did not respond to the unfavorable answers TIDAL gave
29
Dorsey held that demand excusal ___
not met because the BOD not personally liable for bad decisions only conflicted ones and there was no conflict here
30
Dorsey held that by creating the committee, ___
the company cleansed itself of the Dorsey conflict
31
Dorsey and Z test analysis
only third prong would apply but not beholden to Dorsey and hired independent counsel
32
Dorsey says that if the BOD makes a bad decision, the SHs should ___
vote with hands or feet
33
To meet demand excusal, the Dorsey court says plaintiffs would've had to show that ___
Committee intentionally harmed the company to please Dorsey
34
Boeing issue
Have SH show that majority of BOD face substantial likelihood of liability for Boeing losses
35
Boeing holding
Demand excused for directors but not for officers or claims against directors regarding CEO golden parachute
36
Boeing fell under the ___
second prong of Caremark, failure to act
37
Rales test for ___
inaction
38
Aronson test for ___
positive business judgment
39
The Z test combines ___
Aronson and Rales
40
Prong 3 of Z test usually only applies if ___
there is a controller
41
Boeing SHs claim that the BOD ___
utterly failed to put monitoring system in place exposing them to substantial liability (bad faith)
42
It's not enough to have monitoring system, you must also __
check it from time to time
43
102(b)(7) does not apply to ___
officers in derivative suits (but may in direct)
44
Why was the golden parachute decision in Boeing not under Caremark?
It was an action
45
Why was the golden parachute decision in Boeing not meet demand excusal?
- action so get BJR - duty of care so 102(b)(7) low liability (decision didn't open up to personal liability)
46
How could a company like Boeing prove it did the right thing in hindsight?
- prove had info system -agenda about safety at at least 1-2 meetings per year if not all
47
For the Z test you only need ___
even 50% (not 51%)
48
Why did Boeing's BOD face enough liability to meet demand excusal?
- treated crash like PR disaster, no questions about safety even then - not one discussion about safety - no special committee for product safety
49
Theriault facts
Derivative action attorneys win and get 15% of fund created so 304 million
50
Issue in Theriault
Was 15% contingency fee too high
51
Theriault holding
Mandatory cap not appropriate because of equitable principles underlying Common Fund doctrine
52
What is the Common Fund doctrine?
lawyer who recovers common fund entitled to reasonable fee from fund as a whole
53
Sugarland factors
- benefit achieved - Complexity of litigation - contingency - standing and ability of counsel - time and effort of counsel
54
Why did Caremark attorneys get fee if no fund
imposing governance change has monetary value and company got something
55
Theriault dissent complains that the ___ AND __
chancellor not using Sugarland but ad hoc standard, Sugarland more than just incentives for attorneys
56
What is the most important Sugarland factor
benefit achieved
57
Hermelin key facts
Pharma company makes bigger pills and CEO pleads guilty to criminal charges
58
Hermelin holding on criminal indemnification
Guilty plea is not success on the merits (even if it could've been worse)
59
Indemnification law DGCL
145(a)
60
145(a) states that a company has the power to indemnify if ___
officer acted in good faith (allowed in K)
61
145(a) says if acted in bad faith ___
can't indemnify no matter what contract says
62
145(c) says that if ___
successful on merits company must indemnify by law
63
Hermelin holding on HHS
He failed (20 years lifetime ban for him) and doesn't matter that he took hit for the company because 145(c) about his success on the merits
64
Hermelin facts on jail records
Company won't indemnify in his contract if he initiated, filed injunction when news trying to get conversations from prison
65
Hermelin holding on jail records
Court says H did initiate when he filed
66
Hermelin holding on consent decree
H can be indemnified because ultimately excluded from the proceedings
67
In statutory interpretation, the DE court becomes ___ compared to ___
more formalistic, expansive fiduciary duty

Corporations (8 decks)

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