AGENCY
Morris Oil Co. v. Rainbow
Tarnowski v. Resop
Principle responsible for agent
if A steals opportunity belonging to P, A liable to P
PARTNERSHIPS
Martin v. Peyton
Lupien v. Malsbenden
Summers v. Dooley
Rapoport v. 55 Perry Co.
Meinhard v. Salmon
Dreifuerst v. Dreifuerst
Page v. Page
Prentiss v. Sheffel
Drashner v. Sorenson
PTR existence determined by degree of co-mgmt/co-ownership
Intent not a factor in determining existence of PTR
PTR action requires express approval of majority
partner-status is not assignable w/o consent from all others
PUNCTILIO OF AN HONOR MOST SENSITIVE standard
upon dissolution, any partner can force actual sale
any partner can dissolve PTR-at-will anytime
Disagreement/dislike is a legitimate reason for dissolution
No goodwill value for wrongful dissolution causer
LIMITED PARTNERSHIPS
Gateway Potato Sales v. G.B.
Investment Co.
In re USACafes, L.P. Litigation
Substantially Same Test = If limited partner acts like general partner, then liable
Corps that are general partners in a PTR owe PTR fiduciary duty
CORPORATE FORM: How to set up a Corp (See big chart for DGCL rules)
Dodge v. Ford
A.P. Smith Mfg. Co. v. Barlow
Shareholder Supremacy Rule = Shareholder interests always come first
Nexus btwn donation & Business Interest Approach
CORPORATE STRUCTURE: Power Structure & Mgmt Rules
Charlestown Boot & Shoe Co. v.
Dunsmore
People Ex Rel. Manice v.
Powell
Schnell v. Chris-Craft
Industries
Blasius v. Atlas (Del.Ch. 1988)
Stroud v. Grace (Del. 1992)
Williams v. Geier (Del. 1996)
Chesapeake v. Shore (Del.Ch.
2000)
Fletcher v. Atex
Walkovszky v. Carlton
Sea-Land Services, Inc. v.
Pepper Source
= DGCL §141(a)
Shareholder can’t direct BD or be involved in ordinary business mgmt
BD can’t change by-laws to entrench itself, even though they can unilaterally
change bylaws
Voter Interference = Improper Purpose (for any BD action)
If Shareholders Ratified BD action  Π must prove unfairness
Δ gets BJR if it’s disinterested & passes the primary purpose test
Defensive measures reviewed under Unocal, then Blasius.
BD can be removed w/o cause
Parent corp not liable for wholly-owned sub, unless sub = Alter Ego
Stockholders not personally liable for corp
Corporate veil of limited liability will be pierced if (1) unity of interest (2)
inequity by recognizing as separate entities
INFO & VOTING RIGHTS
Security First Corp v. U.S. Die
Casting (Del. 1997)
J.I. Case Co. Borak (US 1964)
Cort v. Ash (US 1975)
Mills v. Electric Auto-Lite
TSC Industries v. Northway
Virginia Bankshares, Inc. v.
Sandberg (US 1991)
Roosevelt v. Du Pont
Amalgamated v. WalMart
Rosenfeld v. Fairchild
In order to inspect book & records under DGCL §220, Π has to show
w/RIFLED PRECISION a proper purpose for each category
Implied private right of action exists for violations of Proxy Rules
States factors for determining if private right of action exists
Causation = Private action if misstatement could’ve affected vote
Definition of MATERIAL
False stmts re: material OPINIONS violate §14(a)
BD can exclude SH proposals if they’re about ordinary business
If matter in proposal is one that shareholders should/would want to know &
vote on, BD muts include
Reimbursement for expenses from proxy contest
DUTY OF CARE & DUTY TO ACT LAWFULLY
Francis v. United Jersey Bank
In re Caremark International
Inc. Derivative Litigation
(Del.Ch. 1996)
Dir. has affirmative duty to manage w/gross negligence std
Breach of fiduciary duty involves sustained systematic inattention. If you do
anything along the lines of corporate governance, no liability
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Aronson v. Lewis (Del. 1984)
Kamin v. American Express
Smith v. Van Gorkom (Del.
1985)
Miller v. American Telephone &
Telegraph Co.
Under BJR, director liability is predicated upon concepts of gross negligence
BJR protects BD decisions if process was sound, even if end result isn’t great
If decision uninformed & bad process, NO BJR. Shareholder ratification only
cures bad process if vote was fully informed.
BJR doesn’t apply to duty to act lawfully. NO BJR for illegal acts
DUTY OF LOYALTY
Lewis v. S.L. & E., Inc. (2d
1980)
Talbot v. James (1972)
Rosenfeld v. Fairchild Engine &
Airplane Corp.
Cooke v. Oolie (Del.Ch. 1997)
Cookies Food Products v. Lakes
Warehouse
Lewis v. Vogelstein (Del.Ch.
1997)
Northeast Harbor Golf Club, Inc.
v. Harris (Maine 1995)
Broz v. Cellular Information
Systems (Del. 1996)
Sinclair Oil Corporation v.
Levien (Del. 1971)
Zahn v. Transamerica Corp. (3d
1947)
Kahn v. Tremont (Del. 1997)
McMullin v. Beran (Del. 2000)
Zetlin v. Hanson Holdings
Gerdes v. Reynolds (1941)
Harris v. Carter (Del. 1990)
Perlman v. Feldmann
Brecher v. Gregg (NY 1975)
Essex Universal v. Yates
If interested directors  NO BJR, Burden on Δ = EF
If dir interested, must fully disclose interest to other dirs & shareholders
Shareholder ratification cures self-dealing as long as the shareholders were
fully informed about the interested parties
Where there are interested directors involved in transaction, if BD can prove
that only disinterested directors approved, BJR still applies.
If self-dealing is approved by fully informed vote & entirely fair, no breach of
fiduciary duty
Executive compensation standard of review is WASTE. Very hard hard std to
meet b/c no reasonable personable could’ve thought decision reasonable
ALI approach: if there’s any possibility of there being a corp opportunity,
fiduciary must first formally disclose to BD
Delaware approach: First it must be determined if a corp opportunity existed.
If yes, then there’s a duty to formally disclose.
In parent-sub deals, std depends on pro-rata benefit
If the controlling shareholder is a director, he owes duty to minority
Entire Fairness can’t just be superficial. RUNNING DOGS Case
BD can delegate negotiating power but not approval power
BLACK LETTER LAW: Controlling interest is a property interest that can be
sold at a premium barring any knowing of looting, harm to corp.
(1) Can’t sell to looters. (2) Can’t sell corporate office by itself.
If there’s a reasonably foreseeable risk to corp from sale of controlling interest
 seller has duty of inquiry
Controlling shareholder can’t sell corp opportunity
Sale of control must be via shares not just office/mgmt
Controlling interest is sufficient for transfer of control. Don’t need majority
CLOSED CORPORATIONS
Donahue v. Rodd Electrotype
Nixon v. Blackwell (Del 1993)
Wilkes v. Springside Nursing
Home
Non-Delaware case that imposes a higher std of fiduciary duty for close corps
Fairness  equality. Close-corp minority gets no special treatment in Delaware
unless they choose to become a “statutory close-corp”
Non-Delaware  Legitimate Business Purpose Test
INSIDER TRADING
In the Matter of Cady,
Roberts & Co. (SEC 1961)
SEC v. Texas Gulf Sulphur
US v. Chestman
Basic v. Levinson (US 1988)
In Re Verifone Securities
Litigation
Blue Chip Stamps v. Manor
Ernst & Ernst v. Hochfelder
Santa Fe Industries v. Green
Goldberg v. Meridor
Novak v. Kasaks
Current SEC Disclose-or-Abstain Law
insiders w/nonpublic, material info must DISCLOSE OR ABSTAIN
If you have inside info but no fiduciary duty to anyone, no duty to
disclose/abstain under 10b-5
Presumption of Reliance for Π b/c fraud-on-the-market theory
Π can only claim reliance based on fraud-on-the-market, if the market price really
did reflect the misstatement. It’s possible that the stmt didn’t change price
A 10b-5 private action requires an actual PURCHASE/SALE of security
A 10b-5 private action requires SCIENTER = wrongful intent to deceive/fraud
10b-5 Action requires manipulation/deception. Mistake in info not enough  this
might be a state law issue (e.g., duty of care)
10b-5: must show causation & actual damages
Scienter = Strong inference of intent to deceive
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Chiarella v. United States
Dirks v. SEC (US 1983)
US v. Carpenter (US 1987)
US v. O’Hagan (US 1997)
Kern County v. Occidental
Colan v. Mesa Petroleum
Malone v. Brincat (Del. 1998)
Nondisclosure  Fraud unless there’s a duty to disclose
Tippee has derivative duty to disclose or abstain
Employment relationship sufficient for duty to disclose/abstain
Misappropriation theory
If either end of short-swing trade or both trades are involuntary, no 16(b) liability
economic coercion  involuntariness  not a sufficient excuse for 16(b)
direct suit but should’ve been derivative
SHAREHOLDER SUITS: DIRECT vs. DERIVATIVE
Sax v. World Wide Press
Grimes v. Donald (Del. 1996)
Barth v. Barth (Ind. 1995)
Bagdon v. Bridgestone/ Firestone
Glenn v. Hoteltron Systems
Perlman v. Feldmann
Bangor Punta Operations, Inc.
v. Bangor Aroostook R.R
Rifkin v. Steele Platt
Marx v. Akers
Aronson v. Lewis (Del. 1984)
Auerbach v. Bennett
Zapata Corp. v. Maldonado
direct suit requires special & distinct harm to Π
Declaratory judgmt/injunctions = direct
trial ct has discretion to allow direct suit w/close-corp
Delaware courts won’t give close-corps special treatment in determining
whether a suit can be direct or derivative
Recovery in derivative suit goes to corp
Direct suit may be allowed if recovery would go to new corp
Contemporaneous Ownership Rule for direct suits
Upholds Bangor Punta contemporaneous ownership rule
No demand required if you can rebut BJR
If director/transaction is interested  NO BJR = demand excused
Even if there’s a Special Lit. Comm, Ct can still review if it was disinterested
& used proper process
Special Litigation Comm. 2 step test protects BD’s decision to reject demand
CORPORATE COMBINATIONS: APPRAISALS, MERGERS, SALES, TAKEOVERS
Katz v. Bregman
Gimbel v. Signal
Sterling v. Mayflower Hotel
Weinberger v. UOP (Del. 1983)
Smith v. Van Gorkam (Del. 1985)
Unocal Corp v. Mesa Petroleum
(Del. 1985)
Moran v. Household
International, Inc. (Del. 1985)
Revlon, Inc. v. MacAndrews &
Forbes Holdings, Inc. (Del. 1985)
Barkan v. Amsted Industries, Inc.
(Del. 1989)
Mills Acquisition Co. v.
MacMillan Co. (Del 1989)
Paramount Communications, Inc.
v. Time Inc. (Del. 1989)
Paramount Communications, Inc.
v. QVC Network (Del. 1994)
Unitrin, Inc. v. American General
Corp. (Del. 1995)
Quickturn Design Systems, Inc. v.
Shapiro (Del. 1998)
sale of all assets requires shareholder approval
Shareholder vote not required for every major corp restructuring, only if it’s a
sale of substantially all assets
If merger is an interested transaction, Director bears burden of EF
EF = fair price+ fair dealing & Rescissory damages
BJR Test (informed decision/good process), see infra
In evaluating defensive measures against takeovers, BD’s action must be
reasonable & proportional to threat before it can get BJR
Poison Pill is a per se LEGAL takeover defense, but is can’t violate Unocal
Once BD has decided to sell corp in a cash-out merger, BD must get best
price possible. Only applies to cash-out deals, not stock-for-stock
Revlon doesn’t require BD to have a heated auction every time there’s change
in corp control
You can’t use a lock-up of crown jewels when that effectively ends a live
auction. Upholds Revlon.
BD determines best deal for corp under DGCL §141(a). Absent Revlon Duty,
BD doesn’t have to abandon deal for short-term profits
upholds Revlon
upholds Unocal, but adds Blasius
Dead-hand/no-hand poison pill plans violate DGCL 141(a) b/c it prevents BD
member from exercising mgmt duty
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