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Corporations
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Carolina Academic Press
Law Casebook Series
Advisory Board
❦
Gary J. Simson, Chairman
Dean, Mercer University School of Law
John C. Coffee, Jr.
Columbia University Law School
Randall Coyne
University of Oklahoma College of Law
Paul Finkelman
Albany Law School
Robert M. Jarvis
Shepard Broad Law Center
Nova Southeastern University
Vincent R. Johnson
St. Mary’s University School of Law
Michael A. Olivas
University of Houston Law Center
Kenneth L. Port
William Mitchell College of Law
H. Jefferson Powell
George Washington University Law School
Michael P. Scharf
Case Western Reserve University School of Law
Peter M. Shane
Michael E. Moritz College of Law
The Ohio State University
Emily L. Sherwin
Cornell Law School
John F. Sutton, Jr.
Emeritus, University of Texas School of Law
David B. Wexler
James E. Rogers College of Law, University of Arizona
University of Puerto Rico School of Law
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Corporations
Cases and Materials
second edition
Lawrence E. Mitchell
Dean and Joseph C. Hostetler - Baker Hostetler Professor of Law
Case Western Reserve University School of Law
Dalia Tsuk Mitchell
Professor of Law
The George Washington University School of Law
Carolina Academic Press
Durham, North Carolina
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Copyright © 2012
Carolina Academic Press
All Rights Reserved
ISBN 978-1-59460-929-9
LCCN 2011936034
Carolina Academic Press
700 Kent Street
Durham, NC 27701
Telephone (919) 489-7486
Fax (919) 493-5668
www.cap-press.com
Printed in the United States of America
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Contents
Table of Principal Cases
xiii
Part 1 · The Nature and Purpose of the Corporation
Introduction
3
3
Section I · The Nature of the Corporation
Trustees of Dartmouth College v. Woodward
Delaware General Corporation Law Section 394
Notes and Questions
Liam Seamus O’Melinn, Neither Contract nor Concession:
The Public Personality of the Corporation
4
5
15
15
Section II · The Purpose of the Corporation
Dodge v. Ford Motor Co.
Notes and Questions
Dalia Tsuk, Corporations Without Labor:
The Politics of Progressive Corporate Law
A. P. Smith Mfg. Co. v. Barlow
The American Law Institute Principles of Corporate Governance:
Analysis and Recommendations
19
19
27
34
Section III · The Corporation and Other Business Forms
36
Section IV · Limited Liability and Its Limits
A. Basic Rules
Walkovszky v. Carlton
Notes and Questions
Kinney Shoe Corporation v. Polan
Notes and Questions
Sea-Land Services, Inc. v. The Pepper Source
Notes and Questions
Comment on Limited Liability
B. Parents and Subsidiaries
Japan Petroleum Co. (Nigeria) Ltd. v. Ashland Oil, Inc.
Notes and Questions
Hideca Petroleum Corporation v. Tampimex Oil International, Ltd.
Notes and Questions
39
39
39
44
45
48
49
52
53
54
54
61
61
64
Section V · Who Counts Within the Corporation?
Steinway v. Steinway & Sons
Notes and Questions
64
64
67
v
16
27
29
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CONTENTS
vi
Simons v. Cogan
Notes and Questions
Jedwab v. MGM Grand Hotels, Inc.
Notes and Questions
In re Trados Incorporated Shareholder Litigation
Connecticut General Statutes Annotated Section 33-756
New York Business Corporations Law Section 717
Notes and Questions
67
70
70
74
75
80
80
81
Section VI · Shareholder Valuism — The New Business “Ethic”
81
Section VII · The Role of the Corporation in Public Life
Bell v. Maryland
Notes and Questions:
Poletown Neighborhood Council v. City of Detroit
Notes and Questions
Charter Township of Ypsilanti v. General Motors Corporation
Notes and Questions
84
84
91
92
93
94
99
Section VIII · The Legal Structure of the Corporation
100
Section IX · A Global Perspective
William W. Bratton and Joseph A. McCahery,
Comparative Corporate Governance and the Theory of the Firm:
The Case Against Global Cross Reference
103
Part 2 · The Duties of Directors and Officers
104
109
Introduction
109
Section I · The Authority of the Board
Delaware General Corporation Law Section 141
Delaware General Corporation Law Section 142
Hoyt v. Thompson’s Executor
Notes and Questions
Grimes v. Donald
Notes and Questions
110
110
113
113
114
116
118
Section II · Derivative Litigation
A. The Distinction Between Derivative and Direct Actions
Eisenberg v. The Flying Tiger Line, Inc.
Notes and Questions
Grimes v. Donald
Notes and Questions
Schoon v. Smith
Notes and Questions
B. Security for Expenses
Baker v. MacFadden Publications, Inc.; Baker v. Boord
Notes and Questions
C. Demand on the Board
Grimes v. Donald
Notes and Questions
D. Demand Refusal
Marx v. Akers
118
119
119
122
123
124
124
129
129
129
131
132
132
135
135
135
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CONTENTS
Notes and Questions
E. Special Committees
Auerbach v. Bennett
Zapata Corporation v. Maldonado
Notes and Questions
F. Demand Futility
London v. Tyrrell
Notes and Questions
Weiss v. Swanson
Notes and Questions
Section III · The Fiduciary Duties of Directors and Officers
A. The Duty of Loyalty
i. Self-Dealing Transactions
Meinhard v. Salmon
Notes and Questions
Bayer v. Beran
Notes and Questions
Delaware General Corporation Law Section 144
New York Business Corporation Law Section 713
Marciano v. Nakash
Notes and Questions
Cooke v. Oolie
ii. Fairness
Fair Price: A Matter of Value — A Primer on Financial Valuation
iii. Corporate Opportunity
Broz v. Cellular Information Systems, Inc.
Notes and Questions
Energy Resources Corporation, Inc. v. Porter
Notes and Questions
In re eBay, Inc. Shareholders Litigation
Notes and Questions
ALI Principles of Corporate Governance Section 5.05
iv. Compensation and Waste
Lewis v. Vogelstein
Notes and Questions
Sanders v. Wang
Notes and Questions
B. The Duty of Care
i. Directors’ Negligence (The Duty to Act)
Francis v. United Jersey Bank
Notes and Questions
Senn v. Northwest Underwriters Inc.
Notes and Questions
ii. The Business Judgment Rule
Kamin v. American Express Company
Notes and Questions
Joy v. North
Notes and Questions
vii
142
142
142
149
155
155
155
160
161
171
171
172
174
174
178
179
185
186
186
187
192
194
199
199
207
207
216
216
219
219
222
222
223
224
234
234
244
245
245
245
255
255
257
257
257
260
263
264
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CONTENTS
viii
iii. The Business Judgment Rule and the Duty of Care
Cede & Co. v. Technicolor, Inc.
Notes and Questions
iv. The Dormant Duty of Care
In re Caremark International Inc. Derivative Litigation
Notes and Questions
The Sarbanes-Oxley Act of 2002
Notes and Questions
In re The Walt Disney Company Derivative Litigation, Brehm v. Eisner
Notes and Question
Stone v. Ritter
Notes and Questions
Lyondell Chemical Company v. Ryan
Notes and Questions
In re Citigroup Inc. Shareholder Derivative Litigation
Notes and Questions
Section IV · The Federal Approach
Basic Inc. v. Levinson
Notes and Questions
West v. Prudential Securities, Incorporated
Notes and Questions
Securities and Exchange Commission v. Texas Gulf Sulphur Co.
Notes and Questions
Chiarella v. U.S.
Notes and Questions
Dirks v. Securities and Exchange Commission
Notes and Questions
U.S. v. O’Hagan
Notes and Questions
Securities and Exchange Commission v. Dorozhko
Part 3 · Shareholders
266
269
276
277
277
288
290
295
296
328
329
337
338
344
344
360
361
362
375
376
379
381
392
393
397
398
405
407
414
414
421
Introduction
421
Section I · Shareholders in Publicly Held Corporations
A. The Disappearance of the Individual Investor
Dalia Tsuk Mitchell, Shareholders as Proxies: The Contours of
Shareholder Democracy
B. The Shareholders’ Power to Elect and Remove Directors
Auer v. Dressel
Notes and Questions
Campbell v. Loew’s Incorporated
Notes and Questions
Schnell v. Chris-Craft Industries, Inc.
Notes and Questions
Blasius Industries, Inc. v. Atlas Corporation
Notes and Questions
Andrew C. Houston, Chancellor Allen’s Jurisprudence: Blasius and
the Democratic Paradigm in Corporate Law
422
422
422
424
424
430
431
437
438
439
439
448
449
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CONTENTS
ix
C. The Proxy Contest
Rosenfeld v. Fairchild Engine and Airplane Corporation
Notes and Questions
Campbell v. Loew’s Incorporated
Notes and Questions
Levin v. Metro-Goldwyn-Mayer, Inc.
Notes and Questions
D. Shareholders’ Rights to Information
Mills v. Electric Auto-Lite Co.
Notes and Questions
TSC Industries, Inc. v. Northway, Inc.
Notes and Questions
Virginia Bankshares, Inc. v. Sandberg
Notes and Questions
E. Shareholder Proposals
Dalia Tsuk Mitchell, Shareholders as Proxies: The Contours of
Shareholder Democracy
17 C.F.R. § 240.14a-8: Shareholder proposals
Amalgamated Clothing and Textile Workers Union v. Wal-Mart Stores, Inc.
American Federation of State, County & Municipal Employees,
Employees Pension Plan v. American International Group, Inc.
F. Recent Developments with Respect to Shareholder Participation
in Corporate Governance
Chapter 10-35, Publicly Traded Corporations (North Dakota)
Notes and Questions
Henry T. C. Hu and Bernard Black, The New Vote Buying:
Empty Voting and Hidden (Morphable) Ownership
451
452
458
459
462
463
468
470
471
475
476
483
483
493
493
Section II · Shareholders in Closely Held Corporations
A. Shareholders’ Voice and Exit Arrangements
Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Ringling
Notes and Questions
Abercrombie v. Davies
Notes and Questions
Lehrman v. Cohen
Notes and Questions
Oceanic Exploration Company v. Grynberg
Notes and Questions
Rosiny v. Schmidt
Notes and Questions
B. The Allocation of Power between Shareholders and Directors
McQuade v. Stoneham
Notes and Questions
Clark v. Dodge
Notes and Questions
Galler v. Galler
Notes and Questions
C. Fiduciary Duties of Shareholders in Closely Held Corporations
Lawrence E. Mitchell, The Death of Fiduciary Duty in Close Corporations
Donahue v. Rodd Electrotype Company of New England, Inc.
538
539
541
547
547
553
554
560
561
566
567
578
578
579
584
584
587
587
593
593
593
594
493
500
504
515
520
521
531
534
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CONTENTS
x
Notes and Questions
Wilkes v. Springside Nursing Home, Inc.
Notes and Questions
Brodie v. Jordan
Notes and Questions
Jordan v. Duff and Phelps, Inc.
Notes and Questions
Nemec v. Shrader
Notes and Questions
D. Remedies for Oppression
Alaska Plastics, Inc. v. Coppock
Notes and Questions
In the Matter of the Judicial Dissolution of Kemp & Beatley, Inc.
Notes and Questions
602
603
608
608
612
613
624
624
633
633
633
637
638
643
Section III · Controlling Shareholders
A. Controlling Shareholders’ Fiduciary Duties
Sinclair Oil Corporation v. Levien
Notes and Questions
Anadarko Petroleum Corporation v. Panhandle Eastern Corporation
Notes and Questions
Zahn v. Transamerica Corporation
Notes and Questions
B. Sale of Control
Perlman v. Feldmann
Notes and Questions
Essex Universal Corporation v. Yates
Notes and Questions
Weinberger v. UOP, Inc.
Notes and Questions
643
643
643
647
647
653
653
656
656
656
661
661
668
669
679
Part 4 · Fundamental Transactions
681
Section I · Sales of Assets
Katz v. Bregman
Notes and Questions
681
683
684
Section II · Mergers
A. Some Historical Background
B. Mergers and Sales of Assets
Farris v. Glen Alden Corporation
Notes and Questions
Hariton v. Arco Electronics, Inc.
Notes and Questions
685
685
688
690
694
695
696
Section III · Parent-Subsidiary Mergers
A. The Remedy
Weinberger v. UOP, Inc.
Cede & Co. v. Technicolor
Notes and Questions
B. Weinberger’s Reach
Rabkin v. Hunt Chemical Corporation
697
697
697
698
701
702
702
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CONTENTS
Notes and Questions
Glassman v. Unocal Exploration Corp.
Notes and Questions
Coggins v. New England Patriots Football Club, Inc.
Notes and Questions
Leader v. Hycor, Inc.
Notes and Questions
Section IV · Tender Offers
Unocal Corporation v. Mesa Petroleum Co.
Notes and Questions
Moran v. Household International, Inc.
Notes and Questions
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.
Notes and Questions
Paramount Communications, Inc. v. Time Incorporated
Notes and Questions
Paramount Communications Inc. v. QVC Network Inc.
Notes and Questions
Unitrin, Inc. v. American General Corp.
Notes and Questions
Omnicare, Inc. v. NCS Healthcare, Inc.
Gantler v. Stephens
Notes and Questions
In re Netsmart Technologies, Inc. Shareholders Litigation
Notes and Questions
Versata Enterprises, Inc. v. Selectica, Inc.
Yucaipa American Alliance Fund II, L.P. v. Riggio
Air Products and Chemicals, Inc. v. Airgas, Inc.
New York Business Corporation Law Section 912
Index
xi
706
707
708
709
714
715
718
719
720
728
730
735
737
745
746
758
759
773
779
796
797
816
829
829
852
853
869
892
924
929
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Table of Principal Cases
Dirks v. Securities and Exchange Commission, 398
Dodge v. Ford Motor Co., 19
Donahue v. Rodd Electrotype Company
of New England, Inc., 594
Eisenberg v. The Flying Tiger Line, Inc.,
119
Energy Resources Corporation, Inc. v.
Porter, 216
Essex Universal Corporation v. Yates, 661
Farris v. Glen Alden Corporation, 690
Francis v. United Jersey Bank, 245
Galler v. Galler, 587
Gantler v. Stephens, 816
Glassman v. Unocal Exploration Corp.,
707
Grimes v. Donald, 116, 123, 132
Hariton v. Arco Electronics, Inc., 695
Hideca Petroleum Corporation v.
Tampimex Oil International, Ltd., 61
Hoyt v. Thompson’s Executor, 113
In re Caremark International Inc. Derivative Litigation, 277
In re Citigroup Inc. Shareholder Derivative Litigation, 344
In re eBay, Inc. Shareholders Litigation,
219
In re Netsmart Technologies, Inc. Shareholders Litigation, 829
In re The Walt Disney Company Derivative Litigation, Brehm v. Eisner, 296
In re Trados Incorporated Shareholder
Litigation, 75
In the Matter of the Judicial Dissolution
of Kemp & Beatley, Inc., 638
Japan Petroleum Co. (Nigeria) Ltd. v.
Ashland Oil, Inc., 54
A. P. Smith Mfg. Co. v. Barlow, 29
Abercrombie v. Davies, 547
Air Products and Chemicals, Inc. v. Airgas, Inc., 892
Alaska Plastics, Inc. v. Coppock, 633
Amalgamated Clothing and Textile
Workers Union v. Wal-Mart Stores,
Inc., 504
American Federation of State, County &
Municipal Employees, Employees
Pension Plan v. American International Group, Inc., 515
Anadarko Petroleum Corporation v.
Panhandle Eastern Corporation, 647
Auer v. Dressel, 424
Auerbach v. Bennett, 142
Baker v. Boord, 129
Baker v. MacFadden Publications, Inc.,
129
Basic Inc. v. Levinson, 362
Bayer v. Beran, 179
Bell v. Maryland, 84
Blasius Industries, Inc. v. Atlas Corporation, 439
Brodie v. Jordan, 608
Broz v. Cellular Information Systems,
Inc., 207
Campbell v. Loew’s Incorporated, 431,
459
Cede & Co. v. Technicolor, 269, 698
Charter Township of Ypsilanti v. General
Motors Corporation, 94
Chiarella v. U.S., 393
Clark v. Dodge, 584
Coggins v. New England Patriots Football Club, Inc., 709
Cooke v. Oolie, 194
xiii
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xiv
TABLE OF PRINCIPAL CASES
Jedwab v. MGM Grand Hotels, Inc., 70
Jordan v. Duff and Phelps, Inc., 613
Joy v. North, 263
Kamin v. American Express Company,
257
Katz v. Bregman, 683
Kinney Shoe Corporation v. Polan, 45
Leader v. Hycor, Inc., 715
Lehrman v. Cohen, 554
Levin v. Metro-Goldwyn-Mayer, Inc.,
463
Lewis v. Vogelstein, 224
London v. Tyrrell, 155
Lyondell Chemical Company v. Ryan,
338
Marciano v. Nakash, 187
Marx v. Akers, 135
McQuade v. Stoneham, 579
Meinhard v. Salmon, 174
Mills v. Electric Auto-Lite Co., 471
Moran v. Household International, Inc.,
730
Nemec v. Shrader, 624
Oceanic Exploration Company v. Grynberg, 561
Omnicare, Inc. v. NCS Healthcare, Inc.,
797
Paramount Communications Inc. v.
QVC Network Inc., 759
Paramount Communications, Inc. v.
Time Incorporated, 746
Perlman v. Feldmann, 656
Poletown Neighborhood Council v. City
of Detroit, 92
Rabkin v. Hunt Chemical Corporation,
702
Revlon, Inc. v. MacAndrews & Forbes
Holdings, Inc., 737
Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Ringling, 541
Rosenfeld v. Fairchild Engine and Airplane Corporation, 452
Rosiny v. Schmidt, 567
Sanders v. Wang, 234
Schnell v. Chris-Craft Industries, Inc.,
438
Schoon v. Smith, 124
Sea-Land Services, Inc. v. The Pepper
Source, 49
Securities and Exchange Commission v.
Dorozhko, 414
Securities and Exchange Commission v.
Texas Gulf Sulphur Co., 381
Senn v. Northwest Underwriters Inc.,
255
Simons v. Cogan, 67
Sinclair Oil Corporation v. Levien, 643
Steinway v. Steinway & Sons, 64
Stone v. Ritter, 329
Trustees of Dartmouth College v. Woodward, 5
TSC Industries, Inc. v. Northway, Inc.,
476
U.S. v. O’Hagan, 407
Unitrin, Inc. v. American General Corp.,
779
Unocal Corporation v. Mesa Petroleum
Co., 720
Versata Enterprises, Inc. v. Selectica, Inc.,
853
Virginia Bankshares, Inc. v. Sandberg,
483
Walkovszky v. Carlton, 39
Weinberger v. UOP, Inc., 669, 697
Weiss v. Swanson, 161
West v. Prudential Securities, Incorporated, 376
Wilkes v. Springside Nursing Home, Inc.,
603
Yucaipa American Alliance Fund II, L.P.
v. Riggio, 869
Zahn v. Transamerica Corporation, 653
Zapata Corporation v. Maldonado, 149
