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Corporations > Shareholder Actions > Flashcards

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
Q

Why was demand excusal not met under prong 2 of the Z test?

A
  • Only three loyalty breaches (not enough for majority
  • ## even if duty of care violation no substantial personal liability because of 102(b)(7)
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26
Q

Why was demand excusal not met under prong 3 of the Z test?

A

Not enough of remaining four directors (without 1 or 2 issue) beholden to anyone with a conflict

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27
Q

Dorsey facts

A

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
Q

Plaintiff argument in Dorsey

A

Committee acted in bad faith because it did not respond to the unfavorable answers TIDAL gave

29
Q

Dorsey held that demand excusal ___

A

not met because the BOD not personally liable for bad decisions only conflicted ones and there was no conflict here

30
Q

Dorsey held that by creating the committee, ___

A

the company cleansed itself of the Dorsey conflict

31
Q

Dorsey and Z test analysis

A

only third prong would apply but not beholden to Dorsey and hired independent counsel

32
Q

Dorsey says that if the BOD makes a bad decision, the SHs should ___

A

vote with hands or feet

33
Q

To meet demand excusal, the Dorsey court says plaintiffs would’ve had to show that ___

A

Committee intentionally harmed the company to please Dorsey

34
Q

Boeing issue

A

Have SH show that majority of BOD face substantial likelihood of liability for Boeing losses

35
Q

Boeing holding

A

Demand excused for directors but not for officers or claims against directors regarding CEO golden parachute

36
Q

Boeing fell under the ___

A

second prong of Caremark, failure to act

37
Q

Rales test for ___

A

inaction

38
Q

Aronson test for ___

A

positive business judgment

39
Q

The Z test combines ___

A

Aronson and Rales

40
Q

Prong 3 of Z test usually only applies if ___

A

there is a controller

41
Q

Boeing SHs claim that the BOD ___

A

utterly failed to put monitoring system in place exposing them to substantial liability (bad faith)

42
Q

It’s not enough to have monitoring system, you must also __

A

check it from time to time

43
Q

102(b)(7) does not apply to ___

A

officers in derivative suits (but may in direct)

44
Q

Why was the golden parachute decision in Boeing not under Caremark?

A

It was an action

45
Q

Why was the golden parachute decision in Boeing not meet demand excusal?

A
  • action so get BJR
  • duty of care so 102(b)(7) low liability (decision didn’t open up to personal liability)
46
Q

How could a company like Boeing prove it did the right thing in hindsight?

A
  • prove had info system
    -agenda about safety at at least 1-2 meetings per year if not all
47
Q

For the Z test you only need ___

A

even 50% (not 51%)

48
Q

Why did Boeing’s BOD face enough liability to meet demand excusal?

A
  • treated crash like PR disaster, no questions about safety even then
  • not one discussion about safety
  • no special committee for product safety
49
Q

Theriault facts

A

Derivative action attorneys win and get 15% of fund created so 304 million

50
Q

Issue in Theriault

A

Was 15% contingency fee too high

51
Q

Theriault holding

A

Mandatory cap not appropriate because of equitable principles underlying Common Fund doctrine

52
Q

What is the Common Fund doctrine?

A

lawyer who recovers common fund entitled to reasonable fee from fund as a whole

53
Q

Sugarland factors

A
  • benefit achieved
  • Complexity of litigation
  • contingency
  • standing and ability of counsel
  • time and effort of counsel
54
Q

Why did Caremark attorneys get fee if no fund

A

imposing governance change has monetary value and company got something

55
Q

Theriault dissent complains that the ___ AND __

A

chancellor not using Sugarland but ad hoc standard, Sugarland more than just incentives for attorneys

56
Q

What is the most important Sugarland factor

A

benefit achieved

57
Q

Hermelin key facts

A

Pharma company makes bigger pills and CEO pleads guilty to criminal charges

58
Q

Hermelin holding on criminal indemnification

A

Guilty plea is not success on the merits (even if it could’ve been worse)

59
Q

Indemnification law DGCL

A

145(a)

60
Q

145(a) states that a company has the power to indemnify if ___

A

officer acted in good faith (allowed in K)

61
Q

145(a) says if acted in bad faith ___

A

can’t indemnify no matter what contract says

62
Q

145(c) says that if ___

A

successful on merits company must indemnify by law

63
Q

Hermelin holding on HHS

A

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
Q

Hermelin facts on jail records

A

Company won’t indemnify in his contract if he initiated, filed injunction when news trying to get conversations from prison

65
Q

Hermelin holding on jail records

A

Court says H did initiate when he filed

66
Q

Hermelin holding on consent decree

A

H can be indemnified because ultimately excluded from the proceedings

67
Q

In statutory interpretation, the DE court becomes ___ compared to ___

A

more formalistic, expansive fiduciary duty

Corporations (8 decks)

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