Business Associations Eakeley Fall 14

Agency: ...........................................................................................................1
Gorton v Doty .................................................................................................. 1
A Gay Jenson Farms v Cargill ....................................................................... 1
Mill Street Church of Christ v Hogan ........................................................... 1
Watteau v Fenwick.......................................................................................... 1
Botticello v Stefanovicz ................................................................................... 1
Hoddeson v Koos Bros .................................................................................... 1
Reading v Regem ............................................................................................. 2
Rash v JV Intermediate .................................................................................. 2
Town & Country House & Home Services v Newberry .............................. 2

Partnership:....................................................................................................2
Fenwick v Unemployment Compensation Commission .............................. 2
Martin v Peyton ............................................................................................... 2
Meinhard v Salmon ......................................................................................... 3
Putnam v Shoaf ............................................................................................... 3
National Biscuit Company v Stroud .............................................................. 3
Pav-Saver Corp v Vasso Corp ....................................................................... 3
Kovacik v Reed ................................................................................................ 3
Holzman v De Escalmilla ................................................................................ 4

Corporations: .................................................................................................4
Role and Purpose: ................................................................................................ 4
AP Smith Mfg v Barlow.................................................................................. 4
Shelensky v Wrigley ........................................................................................ 4
Limited Liability/Piercing the Corp Veil: ............................................................. 4
Walkovsky v Carlton ...................................................................................... 4
Sea-Land Services v Pepper Source .............................................................. 5
Frigidaire Sales Corp v Union Properties .................................................... 5
Derivative Litigation: ........................................................................................... 5
Cohen v Beneficial Industrial Loan Corp ..................................................... 5
Eisenberg v Flying Tiger Line........................................................................ 5
Grimes v Donald .............................................................................................. 6
Marx v Akers ................................................................................................... 6
Auerbach v Bennett ........................................................................................ 6
Zapata Corp v Maldonado ............................................................................. 6
Duty of Care: ........................................................................................................ 6
Kamin v American Express Co...................................................................... 6
Smith v Van Gorkom ...................................................................................... 7
Francis v United Jersey Bank ........................................................................ 7
Duty of Loyalty: Self Dealing: .............................................................................. 7
Bayer v Beran .................................................................................................. 7
Benihana of Tokyo v Benihana ...................................................................... 7
Duty of Loyalty: Corp Opps: ................................................................................ 7
Broz v Cellular Info Systems.......................................................................... 7

Business Associations Eakeley Fall 14

In re Ebay, SH Litigation ............................................................................... 8

Duty of Loyalty: Dominant SHs: .......................................................................... 8
Sinclair Oil Corp v Levin ............................................................................... 8
Zahn v Transamerica Corp ............................................................................ 8
Zetlin v Hanson Holdings ............................................................................... 8
Ratification: .......................................................................................................... 8
Fliegler v Lawrence ......................................................................................... 8
In re Wheelabrator Technologies inc. SH litigation .................................... 9
Duty of Good Faith and Duty to Monitor: ........................................................... 9
In re Walt Disney Co, Derivative Litigation ................................................. 9
Stone v Ritter ................................................................................................... 9
LLC: ...................................................................................................................... 9
Water Waste & Land v Lanham ................................................................... 9
Fisk Ventures v Segal ...................................................................................... 10
Kaycee Land & Livestock v Flahive ............................................................ 10
McConnell v Hunt Sports Enterprises ........................................................ 10
Racing Investment Fund 2000 v Clay Ward Agency ................................. 10
Closely-held Corps: ............................................................................................ 10
Ringling Bros Barnum & Bailey Combined Shows v Ringling ............. 10
McQuade v Stoneham ................................................................................... 11
Clark v Dodge ................................................................................................ 11
Galler v Galler ............................................................................................... 11
Ramos v Estrada ........................................................................................... 11
Wilkes v Springside Nursing Home ............................................................. 11
Ingle v Glamore Motor Sales ....................................................................... 11
Smith v Atlantic Properties .......................................................................... 12
Securities: ........................................................................................................... 12
SEC v WJ Howey Co .................................................................................... 12
R 10b-5 & Misrep: .............................................................................................. 12
Basic v Levinson ............................................................................................ 12
Santa Fe Industries v Green ......................................................................... 12
Inside Trading: ................................................................................................... 12
Goodwin v Agassiz ........................................................................................ 12
SEC v Texas Gulf Sulfur .............................................................................. 13
Dirks v SEC ................................................................................................... 13
United States v OHagan .............................................................................. 13
Short-Swing Profits: ........................................................................................... 13
Reliance Electric v Emerson Electric .......................................................... 13
Foremost-McKesson v Provident & Securities .......................................... 13
Proxy Fights and Rules: ..................................................................................... 14
Levin v Metro-Goldwyn-Mayer................................................................... 14
Rosenfeld v Fairchild Engine & Airplane Corp......................................... 14
JJ Case v Borak ............................................................................................. 14

Business Associations Eakeley Fall 14

Mills v Electric v Auto-lite............................................................................ 14

SH Proposals: ..................................................................................................... 14
Lovenheim v Iroquois Brands ...................................................................... 14
AFSCME v AIG ............................................................................................ 15
SH Inspection Rights: ......................................................................................... 15
Crane v Anaconda ......................................................................................... 15
State ex rel Pillsbury v Honeywell ............................................................... 15
Mergers, Acquisitions, and Takeovers: .............................................................. 15
Farris v Glen Alden Corp ............................................................................. 15
Weinberger v UOP ........................................................................................ 16
Cheff v Mathes .............................................................................................. 16
Unocal v Mesa Petroleum ............................................................................. 16
Revlon v MacAndrews & Forbes Holdings ................................................ 16
Paramount Communications v Time .......................................................... 16
Paramount Communications v QVC Network .......................................... 17
Lyondell Chemical v Ryan ........................................................................... 17

Business Associations Eakeley Fall 14

Agency:
Gorton v Doty
Facts: P was injured in a car accident after D loaned her car to G to transport P and
others to a football game.
Law: An agency relationship results from one persons consent that another will act on
his behalf and subject to his control, and the other persons consent so to act.

A Gay Jenson Farms v Cargill

Facts: Ps entered into grain contracts w/ WGS which was financed and controlled by
D, a separate entity.
Law: A creditor that assumes control of its debtors business may become liable as
principal for the debtors acts in connection with the biz.

Mill Street Church of Christ v Hogan

Facts: P was injured after he was hired by a church employee to paint the inside of the
church.
Law: Implied authority is actual authority that the principal intended the agent to
possess and includes such powers as are practically necessary to carry out the
delegated duties.

Watteau v Fenwick
Facts: H operated Ds tavern under Hs name and credit, and purchased gods from P
without Ds express authority.
Law: When a principal is undisclosed to 3rd parties, the actions taken by an agent in
furtherance of the principals usual and ordinary biz binds the principal.

Botticello v Stefanovicz
Facts: P agreed with D to leas property that he owned as tenants in common with his
wife, and the lease contained an option to purchase.
Law: Ratification requires affirmance by a person with full knowledge of the material
terms of a prior act which did not bind him but which was done or professedly done on
his account.

Hoddeson v Koos Bros

Facts: P paid money for the purchase of furniture to an imposter salesperson in Ds
furniture store.
Law: If a biz proprietor by his dereliction of duty enables one who is not his agent to
act conspicuously as such and to transact the proprietors biz with a patron in the
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establishment, estoppel prevents to proprietor from defensively availing himself of the
imposters lack of authority in order to escape liability for the customers
consequential loss.

Reading v Regem
Facts: P obtained payments for accompanying unlawful contraband past civilian
police checkpoints while employed by the British army.
Law: A servant is accountable to his master for profits he obtains because of his
position, if the servant takes advantage of his position and violates his duty of good
faith and honesty to make the profit for himself.

Rash v JV Intermediate
Facts: After an employees contract expired, he continued working for the same
employer but started a competing biz and awarded that biz several lucrative contracts
with the employers biz, unbeknownst to the employer.
Law: Unless otherwise agreed, an agent is subject to a duty to his principal to act
solely for the benefit of the principal in all matters connected with his agency. (Duty
of loyalty)

Town & Country House & Home Services v Newberry

Facts: D and other Ds established competing housekeeping biz using method and
techniques similar to those P had developed.
Law: A biz proprietor may not solicit his former employers customers who are not
openly engaged in biz in advertised locations or whose availability ass patrons cannot
readily by ascertained, but whose trade and patronage have been secured by years of
biz effort, advertising, and the expenditure of time and money.

Partnership:
Fenwick v Unemployment Compensation Commission
Facts: C and D entered into a PA, pursuant to which D contributed all capital
investments, possessed exclusive control over the management of the biz, and bore the
risk of all biz losses.
Law: A partnership is an association of 2+ persons to carry on as co-owners of a biz
for profit.

Martin v Peyton
Facts: M sued P, D, and F, as alleged partners of a firm that owes M money, when the
defendants entered into an elaborate loan agreement with the firm.

Business Associations Eakeley Fall 14

Law: A partnership is created by an express or implied contract between 2 persons
with the intent to form a partnership.

Meinhard v Salmon
Facts: D terminated a lease belonging this JV with P to enter into a new lease on
behalf of his solely owned biz.
Law: Like partners, joint adventurers owe one another the duty of loyalty.

Putnam v Shoaf
Facts: P sold all her interest in her partnership to D in exchange for Ds assumption of
personal liability on a bank note.
Law: A partners property rights include rights in specific partnership property,
interests in the partnership, and the right to participate in the partnerships
management.

National Biscuit Company v Stroud

Facts: F purchased bread from P, although his partner D had informed F and P that he
would no longer be responsible for additional bread purchases.
Law: Every partner is an agent of the partnership for the purpose of its biz, and every
partners acts for apparently carrying on in the usual way the partnerships biz binds
the partnership, unless the acting partner has in fact no authority to act for the
partnership and the person with whom he is dealing knows that he has no such
authority.

Pav-Saver Corp v Vasso Corp

Facts: D alleged P wrongfully dissolved the partnership, seeking to continue the
partnership biz.
Law: upon a wrongful dissolution of a partnership in violation of the partnership
agreement, each partner who has not wrongfully dissolved the partnership is entitled to
damages for breach of contract and may continue the partnership biz for the term
required under the partnership agreement with the right to possess the partnership
property upon posting a bond.

Kovacik v Reed
Facts: K sought recover from R of one-half of the money capital he invested on a
losing biz venture.
Law: If one partner or joint adventurer contributes the money capital and the other
contributes the skill and labor necessary for the venture, neither party is entitled to
contribution from the other.

Business Associations Eakeley Fall 14

Holzman v De Escalmilla
Facts: P, as bankruptcy trustee, sued the limited partners of a bankrupt partnership to
establish them as general partners liable for their creditors debts.
Law: A limited partner is not liable as a general partner unless, in addition to
exercising his rights and powers as a limited partner, he takes part in the control of the
biz.

Corporations:
Role and Purpose:
AP Smith Mfg v Barlow
Facts: P, a D shareholder, brought an action seeking to find that a charitable donation
made by the corporation was invalid.
Law: A corp may make reasonable charitable contributions, even in the absence of
express statutory provisions.

Dodge v Ford Motor Co

Facts: D made extraordinary profits and its founder, F intended to use those profits to
lower the price of its cars and expand its factories capabilities by adding a steel plant,
but P (Ds shareholders) objected to these policies claiming that the companys first
obligation was to make profits for its shareholders.
Law: Although a corps directors have discretion in the means they choose to make
products and earn a profit, the directors may not reduce profits or withhold dividends
from the corps shareholders in order to benefit the public.

Shelensky v Wrigley
Facts: P a Chicago Cubs shareholder, brought a derivative suit against the Cubs and its
directors for negligence and mismanagement and for an order that the defendant install
lights for night baseball games.
Law: A shareholder fails to state a cause of action unless it alleges that a corps
directors conduct was causing financial loss to the shareholder and was based upon
fraud, illegality or conflict of interest.

Limited Liability/Piercing the Corp Veil:

Walkovsky v Carlton
Facts: A pedestrian struck by a taxi sued the corp in hose name the taxi was registered,
the driver, nine corps in whose names other taxis were registered, two additional
corps, and three individuals.
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Law: Absent an allegation that the D was conducting biz in his individual capacity, a
complaint charging that an individual D organized a fleet of taxis in a fragmented
manner solely to limit his liability for personal injury claims in insufficient to hold the
individual liable for the claim.

Sea-Land Services v Pepper Source

Facts: D owed P for the cost of shipping peppers; however D was dissolved before P
could enforce a judgment against it.
Law: in order to pierce the corp veil and impose individual liability, a creditor must
show, (1) that there was such a unity of interest between the individual and the corp
entity that separate identities no longer existed, and (2) that a failure to do so would
promote injustice in some way beyond simply leaving a creditor unable to satisfy its
judgment.

Frigidaire Sales Corp v Union Properties

Facts: P a creditor of CI, a LP, brought an action against the cop GP and its LPs
individually when the partnership failed to pay installments due on contract.
Law: LPs are not liable for the debts of a LP simply by their status as officers,
directors, or shareholders of the corp GP as long as they conscientiously keep the corp
matters separate from their personal biz and no fraud or manifest injustice results.

Derivative Litigation:
Cohen v Beneficial Industrial Loan Corp
Facts: C brought a SHs derivative suit against D and others and D brought a motion
seeking to have P (Cs executrix) post security for the expenses associated with
prosecuting the lawsuit.
Law: A NJ statute that reqs a holder of less than 5% of a corps outstanding shares
who brings a derivative suit to pay for all expenses of defending the suit and that
requires security for the payment of these expenses should be enforced in cases
prosecuted under federal diversity jurisdiction.

Eisenberg v Flying Tiger Line

Facts: a SH in a corp that ceased to exist post-merger, brought an action on behalf of
himself and all other SHs of the dissolved corp, to enjoin the plan of reorg and
merger.
Law: An action seeking to overturn a reorg and merger tat deprived an acquired corps
SHs from having a voice in the surviving corps biz operations is a personal action
rather than a derivative action under the NY statute reqing the posting of security for
the corps costs.

Business Associations Eakeley Fall 14

Grimes v Donald
Facts: P who learned of the extremely generous compensation package DSC had
extended to D, demanded DSC cancel Ds contract.
Law: A SH need not make a demand that a Cos board institute a lawsuit before
bringing a derivative suit on behalf of the corp on a showing the demand would be
futile, and if a demand is made and rejected, a SH may still proceed by establishing
that the boards refusal was wrong.

Marx v Akers
Facts: A SH brought a derivative action charging breach of fiduciary duty and corp
waste by IBMs BoD for excessive compensation of IBMs executives and outside
directors.
Law: A P establishing that a demand on a Cos board would have been futile must
show either that the measure furthered the boards self-interest, that the directors did
not fully inform themselves bout the challenged transaction, or that the challenged
transaction was so egregious on its face that I could not have been the product of the
directors sound biz judgment.

Auerbach v Bennett
Facts: A Corp appointed a special committee to investigate the basis of a SHs
derivative suit charging mismanagement of corp funds, and the committee determined
the suit should be terminated.
Law: A special litigation committees determination forecloses further inquiry into a
matter, provided the committees investigation is bona fide.

Zapata Corp v Maldonado

Facts: P, a SH of D, sued Ds officers and directors for breach of fiduciary duty, but P
did not ask Ds BoD to bring the action, considering the request to be futile.
Law: While a majority of a board may lack the independence to evaluate a derivative
claim, the taint of self-interest is not necessarily sufficient t prevent the board from
delegating the evaluation to an independent committee comprised of disinterested
board members who may recommend dismissal of a SHs action.

Duty of Care:
Kamin v American Express Co
Facts: SHs brought a derivative action, asking for a declaration that a certain dividend
in kind was a waste of corp assets.
Law: A complaint alleging that some course of action other than that taken by the
board would have been more advantageous does not give rise to a cause of action for
damages.
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Smith v Van Gorkom

Facts: Ds SHs brought a class action suit against the Cos BoD for negligent decision
making.
Law: The BRJ presumes that, when making biz decisions, directors act on an informed
basis, in good faith and in the companys best interests.

Francis v United Jersey Bank

Facts: The bankruptcy trustee of various creditors brought suit against Pritchards
estate to recover misappropriated funds.
Law: Directors have the duty to act honestly and in good faith and with the same
degree of diligence, care, and skills that a reasonably prudent person would use in
similar circumstances.

Duty of Loyalty: Self Dealing:

Bayer v Beran
Facts: SH brought a derivative suit against D (directors of CCA) for breach of
fiduciary duty for approving and extending a $1,000,000 per year radio advertising
program.
Law: A director does not breach his or her fiduciary duty by approving a radio
advertising program in which the wife of the corp president, who was also a member
of BoD, was one of the featured performers.

Benihana of Tokyo v Benihana

Facts: A board member of F arranged a stock sale between D and BFC, another
company for which he served on the board, and the majority SH of D contested the
deal.
Law: DGCL 144 provides a safe harbor for interested transactions if the material
facts as to the directors relationship or interests as to the contract or transaction are
disclosed or are known to the BoD, and the board in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested directors.

Duty of Loyalty: Corp Opps:

Broz v Cellular Info Systems
Facts: CIS filed suit against B for breach of fiduciary duty, alleging he put his own
interests before that of the corp.
Law: Under Doctrine of Corp Opp, a corp fiduciary must place the corps interests
before his or her own interests in appropriate circumstances, but a corp fiduciary does
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not breach his or her duty by not considering the interests of another corp proposing to
acquire the corp in deciding to make a corp purchase.

In re Ebay, SH Litigation
Facts: Individual eBay directors and officers accepted high-profit IPO investments
from GS as an incentive for maintaining a future biz relationship
Law: The fiduciary duty of loyalty reqs directors and officers to offer investment
opportunities derived from corp biz to the corp before acting on them individually.

Duty of Loyalty: Dominant SHs:

Sinclair Oil Corp v Levin
Facts: SHs brought a derivative action against D to require an accounting for damages
sustained by its subsidiary, SVOC.
Law: If, in a transaction involving a parent company and its subsidiary, the parent
company controls the transaction and fixes the terms, the transaction must meet the
intrinsic fairness test.

Zahn v Transamerica Corp

Facts: SHs of the AF sued D claiming that they caused AF to redeem its Class A stock
at $80.80/share , instead of allowing them to participate in the liquidation of company
assets, in which case they would have received $240/share,
Law: If a SH who is also a director is voting as a director, he or she represents all SH
in the capacity of a trustee and cannot use the directors position for his or her personal
benefit to the SH detriment.

Zetlin v Hanson Holdings

Facts: P owned 2% of GI when Ds which owned a controlling interest in GI, sold their
shares to F for $15/share at a time the common stock was trading at $7.38/share.
Law: In the absence of an allegation that a SH is looting corp assets or has committed
fraud or other acts of bad faith, a SH may obtain a premium price for the sale of a
controlling block of shares.

Ratification:
Fliegler v Lawrence
Facts: A SH brought a derivative action against the officers and directors of AM and
the USAC to recover 800,000 shares of AM stock transferred to USAC.
Law: A majority of disinterested SH must ratify corp transactions with an interested
director.
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In re Wheelabrator Technologies inc. SH litigation

Facts: the SHs of D sued the companys directors for breach of fiduciary duty,
alleging the proxy statement issued in connection with its merger was misleading.
Law: An interest transaction b/w a corp and its directors is not voidable if it is
approved in good faith by a majority of fully informed, disinterested SHs.

Duty of Good Faith and Duty to Monitor:

In re Walt Disney Co, Derivative Litigation
Facts: SH brought a derivative suit against the directors and officers of the company,
claiming breaches of fiduciary duty and waste in connection with the hiring and firing
of, and payment of a $130 million severance package to, the new company president.
Law: The Rule presumes that in making a biz decision, the directors of a corp acted on
an informed basis, in good faith, and in the honest belief that the action taken was in
the best interest of the company.

Stone v Ritter
Facts: After the corps banks were assessed significant fines for employee
misconduct, shareholder initiated a derivative action but failed to make a demand on
the board prior to filing suit.
Law: To excuse the statutorily required pre-suit demand on directors, a curt must
determine whether the particularized factual allegations of a derivative stockholder
complaint create a reasonable doubt that, as of the time the complaint was filed, the
BoD could have properly exercised its independent and disinterested biz judgment in
responding to a demand.

LLC:
Water Waste & Land v Lanham
Facts: P negotiated with C believing he was Ds agent, but D and C were both
members of PII, an LLC.
Law: If a LLCs agent fails to inform a 3rd party that he is acting as the companys
agent, the LLCAs notice provision does not relieve the agent of liability to the 3rd
party.

Elf Atochem North America v Jaffari

Facts: P engaged in a JV with D the president of M and the two entities formed a LLC
but the company did not sign its operating agreement.

Business Associations Eakeley Fall 14

Law: a LLC is bound by the terms of an operating agreement that is signed by some of
its members and that defines the LLCs governance and operation, even if the LLC did
not execute the agreement.

Fisk Ventures v Segal

Facts: Members of a LLC sought to dissolve the company, and the founding member
countersued them for breaching their contractual and other duties to the company.
Law: The mere existence of ones contractual rights, w/o more, does not constitute a
breach of the implied covenant of good faith and fair dealing.

Kaycee Land & Livestock v Flahive

Facts: F, through D a LLC, leased underdeveloped property from P and contaminated
the property.
Law: The common law doctrine of piercing the corp veil is not abrogated by the
LLCA and may be used against LLC members in appropriate cases.

McConnell v Hunt Sports Enterprises

Facts: Several individuals formed a LLC to try to attract an NHL team to Columbus,
Oh, but when the companys principal did not enter into the necessary agreements in
time to be considered by the NHL, a subgroup of the company secured the needed
facilities and was awarded the NHL franchise.
Law: LLC members are bound by the terms of their operating agreement, and if the
agreement expressly allows them to engage in any other biz venture of any nature
they are not prohibited from participating in a competing venture.

Racing Investment Fund 2000 v Clay Ward Agency

Facts: After a judgment was entered against a LLC for past-due insurance premiums,
the court held that the LLC members personally liable for the amount that the LLC
(then defunct) could not pay, based on their agreement to infuse the LLC with capital
as necessary; the members appealed.
Law: Assumption of personal liability by a member of a LLC is so antithetical to the
purpose of a LLC that any such assumption must be stated in unequivocal terms
leaving no doubt that the members intended to forego a principal advantage of his
form of biz entity.

Closely-held Corps:
Ringling Bros Barnum & Bailey Combined Shows v Ringling
Facts: P agreed to vote her stock in agreement with D but then refused to do so.
Law: A SH may agree with another SH to vote his or her shares in a particular way.
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McQuade v Stoneham
Facts: P who was employed as a corp treasurer pursuant to a SH agreement was
discharged.
Law: SH agreement may not control a BoDs exercise of judgment.

Clark v Dodge
Facts: P who was employed as a treasurer and general manager of a corp pursuant to a
SH agreement was discharged.
Law: A SH agreement regarding employment of certain individuals as officers is
enforceable if the directors are the sole SHs.

Galler v Galler
Facts: D entered into a SH agreement with his brother B and later refused to abide by
the agreement.
Law: SH agreements that relate to the management of a close corp will be upheld,
even if the agreements violate corp norms.

Ramos v Estrada
Facts: D did not vote her stock in accordance with a SHs agreement, and P brought
suit for breach of K.
Law: voting agreements b/w two or more SHs of a corp are enforceable, even if the
corp does not qualify as a close corp.

Wilkes v Springside Nursing Home

Facts: P who formed a real estate investment biz with 3 other men who shared equally
in the biz, created disharmony and was fired when he struck a particularly hard bargain
with one of the SHS n the sale of some corp property.
Law: Majority SHs acting to freeze out a minority SH by terminating his
employment without a valid biz purpose have breached their duty to act as fiduciaries.

Ingle v Glamore Motor Sales

Facts: P was a sales manager at and a SH of D and when the company terminated his
employment, his shares were bought back under ta SHs agreement.
Law: If a SHs agreement provides for the right to repurchase shares upon the
termination of a SHs employment with the issuing company, the employment is
treated as employment at will land the SH has no claim for damages upon termination.

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Smith v Atlantic Properties

Facts: D who owned part of a corp that purchased property for investment, blocked
dividend payments to other SHs, leading to substantial IRS penalties and limiting the
others returns from their investments.
Law: A minority SH may abuse his position by using measures designed to safeguard
his position in a manner that fails to take into consideration his duty to act in the
utmost good faith and loyalty toward the company and his fellow SHs.

Securities:
SEC v WJ Howey Co
Facts:
Law:

R 10b-5 & Misrep:

Basic v Levinson
Facts: Former D SHs brought a class action suit against D and its directors, claiming
the directors issued thee false statements and forced the former SHs to sell their shares
at depressed prices based on their reliance on Ds statements that it was not engaged in
merger discussions.
Law: An omitted fact is Material if there is a substantial likelihood that the average,
reasonable SH would have considered it important knowledge to have before deciding
how to vote.

Santa Fe Industries v Green

Facts: KLs minority SHs (P) sued D which was KLs majority SH, seeking to set
aside the merger of KL with D and alleging that their stock was worth more than they
were offered when the companies merged.
Law: Under the short-term merger statute, a parent company may merge itself with its
subsidiary if the parent owns at least 90% of the subsidiarys stock and if the parent
companys BoD approves the action.

Inside Trading:
Goodwin v Agassiz
Facts: P, a SH in CMC, filed suit against D for damages suffered during the sale of his
stock.
Law: A directors knowledge of the corps condition reqs that he engage in fair
dealing when directly buying or selling the corps stock.
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SEC v Texas Gulf Sulfur

Facts: P filed suit against D for violation of the insider-trading provision of R 10b-5.
Law: A person who is trading a corps securities for his own benefit and who has
access to info intended to be available for bis use only, may not take advantage of the
info, knowing it is not available to those with whom he is dealing.

Dirks v SEC
Facts: P accused D of violating the antifraud provisions of the federal securities laws
for disclosing to investors material nonpublic info he received from insiders.
Law: A tippee does not inherently have a duty to disclose material non-public info
merely b/c he knowingly received the info.

United States v OHagan

Facts: SEC indicted D, an attorney on 57 counts including 17 counts of securities
fraud and 17 counts of fraudulent trading in connection with a tender offer, for his
trading on nonpublic info in breach of the duty of trust and confidence he owed to his
law firm and its clients.
Law: An attorney who, based on inside info he acquired as an attorney representing an
offeror, purchased stock in a target corp before the corp was purchased in a tender
offer is guilty of securities fraud in violation of R 10b-5 under the misappropriation
theory.

Short-Swing Profits:
Reliance Electric v Emerson Electric
Facts: P which acquired 13.2% of the outstanding stock of D was faced with the
failure of its takeover attempt, disposed of enough shares to bring its holdings below
10% in order to avoid liability under 16(b).
Law: A corp may recover the profits realized by an owner of more than 10% of its
outstanding shares from a purchase and sale of its stock within any 6 month period,
provided the owner held more than 10% at the time of both the purchase and the sale.

Foremost-McKesson v Provident & Securities

Facts: P sued D to recover profits realized on the sale of debentures to the
underwriters.
Law: A corp may capture for itself the profits realized on a purchase and sale of its
securities within 6 months by a director, officer, or beneficial owner, but a beneficial
owner is accountable to the issuer only if it was a beneficial owner before the
purchase.
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Proxy Fights and Rules:

Levin v Metro-Goldwyn-Mayer
Facts: Levin and 5 other SHs of D (P) brought an action against its directors, arguing
the management was using illegal and unfair methods of communicating with SHs and
had forced the corp to bear the expenses of a proxy solicitation.
Law: Incumbent management may take reasonable use of corp assets to inform SHs of
its position in a proxy contest involving corp policy issues.

Rosenfeld v Fairchild Engine & Airplane Corp

Facts: SHS brought a derivative action arising out of money paid by the corp to defray
rival factions expenses in a proxy fight.
Law: Absent a claim that the expenses were unwarranted, excessive, or otherwise
improper, a corp may reimburse factions for costs associated with a proxy fight
involving a policy contest, but not one involving a personal power contest.

JJ Case v Borak
Facts: P and other SHs found that the proxy materials used by D used their names as
part of the companys efforts to obtain approval of a merger with ATC, P sued to have
the merger declared void.
Law: It is unlawful to solicit a proxy or consent authorization using false and
misleading statements, and, in such event, a court may enforce a private right of action
for rescission or damage.

Mills v Electric v Auto-lite

Facts: Ps brought suit to undo a merger b/c the proxy materials submitted to the SHs
before the mergers vote failed to disclose that the board members endorsing the
merger were nominees of the targeting company who had held a majority interest in
the targeted company years before the merger was proposed.
Law: to establish a cause of action under 14 f the SEA, a P need show only the
misstatements or omissions materiality and its ability to influence a SHs vote.

SH Proposals:
Lovenheim v Iroquois Brands
Facts: P asked to have info about resolution he proposed to make at an upcoming SHs
meeting included in the companys proxy material, but the company refused.

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Law: Under 14(a) of the SEA, a SH may include in the companys proxy statements
certain materials that have limited, if any, economic impact on the company as long as
they are otherwise significantly related to the issuers biz.

AFSCME v AIG
Facts: AIG SHs made a proposal relating to the publication of BoD candidates names
and sked that the proposal be included in AIGs proxy materials, but AIG objected,
arguing that the proposal need not be included b/c it related to an election and
therefore fell within an exclusion from the req that SH proposals be included in proxy
materials.
Law: Proxy access bylaw proposals, which relate to election procedures in general
rather than specific, upcoming elections, are non-excludable under SEC Rule 14a8(i)(8).

SH Inspection Rights:
Crane v Anaconda
Facts: P sought to acquire 20% of Ds shares and asked to have access to Ds SH list
to distribute info on the tender offer directly to Ds SHs.
Law: A corp must grant a SH who wants to discuss a tender offers terms directly with
the Corps SHs access to the SH list, unless the corp can establish a wrongful purpose.

State ex rel Pillsbury v Honeywell

Facts: P purchased D stock in order to bring suit to compel production of Ds corp
books and records
Law: A SH who purchased stock for the sole purpose of bringing suit to compel
production of corp books and records, who was motivated by his belief that the corp
should not be manufacturing ammunition to be used in the Vietnam War, and who had
no concern for the corps economic well-being, cannot compel production of the corps
SH list or business records.

Mergers, Acquisitions, and Takeovers:

Farris v Glen Alden Corp
Facts: L which purchased almost 40% of the outstanding shares of D and
characterized its purchase as an asset purchase rather than a merger, proposed a reorg
whereby L would operate D.
Law: If a contemplated transactions result is the same as a merger, the transaction is a
de facto merger, and the target corps SHs have the right to dissent and receive fair
value for their shares.

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Weinberger v UOP
Facts: D which wanted to acquire D, offered to buy a majority of Ds shares and then
used its nominees on Ds board to help it obtain more of Ds stock.
Law: Minority SHs in a cash-out merer are entitled to damages based on their shares
fair value, as determined by taking into account all relevant factors (including damages
based on rescission) if the mergers approval was obtained on less than full disclosure
and the mergers terms were unfair.

Cheff v Mathes
Facts: SHs brought a derivative suit against the companys directors after the board
authorized a series of expensive actions to ward off an outsider SHs attempt to take
over the company.
Law: If a companys board sincerely believes that buying out a dissident SH is
necessary to maintain proper biz practices, the board is not liable for the decision even
if in hindsight the decision may not have been the best course.

Unocal v Mesa Petroleum

Facts: P, a minority SH made a hostile tender offer for Ds tock and diiles a complaint
to challenge Ds boards decision to affect a self-tender for its own shares b/c pursuant
to the offers terms P could not participate.
Law: A board may use corp funds to purchase its own shares to remove a threat to
corp policy and may deny the dissident SH the right to participate in the self-tender
offer provided the actions are motivated by genuine concern for the company and its
SHs and provided that the proposed defensive measures are not out of balance with the
threats significance.

Revlon v MacAndrews & Forbes Holdings

Facts: Bidder for Corps stock brought an action to enjoin certain defensive actions
taken by the target corp and others.
Law: De law permits agreements to forestall or prohibit hostile forces from acquiring
a company, but the methods may not breach a directors fiduciary duty, so that once
the sale appears inevitable, the board must work to maximize the companys value to
ensure the highest possible price.

Paramount Communications v Time

Facts: Shortly before a merger b/w D and WC was to be put to a SH vote, P launched
a take-over effort against D and when Ps efforts were rejected, it filed suit seeking a
preliminary injunction to halt the T-W merger.
Law: If a board is pursuing a merger for strategic reasons beyond merely the sale or
acquisition of another companys assets, it may decline to entertain a competing bid

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that may yield a higher short-term gain for its SHs in favor of a merger that ensures
greater long-range gains.

Paramount Communications v QVC Network

Facts: V and D formed an alliance even though P proposed a more valuable offer to D.
Law: A board selling its corp has a duty to obtain the best value for its SHs and cannot
give preference to one of the competing bidders.

Lyondell Chemical v Ryan

Facts: SHs sued as a class after the company in which they owned stock was sold to
another company, claiming that the BoD did not get the best price they could and
therefore breached their duties to the SHs.
Law: The imposition of liability on corp directors for Breach of duty of god faith reqs
that they were not discharging their fiduciary obligations.

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