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1Are corporate directors fiduciaries?
Are corporate directors fiduciaries?2What does the duty of care require of directors and key officers of a corporation?
What does the duty of care require of directors and key officers of a corporation?3A woman worked for a corporation and supervised an employee with repeated performance issues. The woman filed extremely critical year-end reviews o...
A woman worked for a corporation and supervised an employee with repeated performance issues. The woman filed extremely critical year-end reviews of the employee for three years in a row. The woman then became a member of the corporation’s board of directors. The corporation was considering buying a facility. The woman learned that the bad employee was providing key valuation insight for the purchase. Based on the employee’s reports, the board of directors determined that the facility was worth $100,000, and the corporation bought the facility for that price. The corporation later discovered that the employee had made serious errors, and the facility was worth only $50,000. Several shareholders threatened to sue for the bad investment.In her role as a director, can the woman insulate herself from personal liability by claiming that she relied in good faith on the employee’s reports?4A corporation was contemplating the purchase of a parcel of land. The land was listed for sale at $100,000. For the transaction, the board of direc...
A corporation was contemplating the purchase of a parcel of land. The land was listed for sale at $100,000. For the transaction, the board of directors had retained a real estate attorney who had been an appraiser for 20 years before going to law school. The directors also asked the real estate attorney to value the property. The attorney responded that $100,000 represented the parcel’s fair market value. The corporation agreed to buy the parcel for $100,000. The following month, a comparable property sold for $45,000. Shareholders were furious after learning that the directors’ appraisal assessment was based on an attorney’s opinion.Did the directors breach their duty of care by relying on the attorney’s appraisal opinion?5What is the business judgment rule?
What is the business judgment rule?6What are the elements of a defense based on the business judgment rule defense?
What are the elements of a defense based on the business judgment rule defense?7A corporation was considering investing part of its cash reserves in mortgage-backed securities. The board of directors undertook a thorough evalua...
A corporation was considering investing part of its cash reserves in mortgage-backed securities. The board of directors undertook a thorough evaluation of the investment options and determined that the corporation would likely realize significant profits from the investment. None of the directors had an interest in any of the investment options, and all were acting in good faith in what they believed were the best interests of the corporation. Unfortunately, the investment was a disaster, and the shareholders were furious. The shareholders claimed that the directors violated the duty of care by not acting as reasonably prudent persons in their positions would.Can the directors successfully use the business judgment rule as a defense to the shareholders’ claim?8A corporation learned of a potential contamination issue involving some of the dietary supplements it manufactured. The board met to discuss the is...
A corporation learned of a potential contamination issue involving some of the dietary supplements it manufactured. The board met to discuss the issue. The board heard numerous presentations from employees and scientists. The board believed that the risk of harm to its clients was miniscule, but the cost of a proper recall would plunge the company into bankruptcy. The board voted to take no action. None of the directors had a personal interest in the matter, and all voted in good faith. Unfortunately, a few of the corporation’s celebrity clients become ill after taking the supplements, and posted messages on social media disparaging the products. The corporation’s sales plummeted, and shareholders claimed that the directors breached the duty of care by not issuing a recall.May the directors rely on the business judgment rule to defend against this claim?9What is the entire-fairness defense?
What is the entire-fairness defense?10If a director made a business decision without conducting a reasonable investigation, what defense or defenses may the director use to avoid liabil...
If a director made a business decision without conducting a reasonable investigation, what defense or defenses may the director use to avoid liability for the decision?11A corporation was considering selling its fleet of corporate vans. The directors received only one bid, for $1 million. The bid was good for 24 hou...
A corporation was considering selling its fleet of corporate vans. The directors received only one bid, for $1 million. The bid was good for 24 hours. The directors considered appointing a subcommittee to determine the fair market value of the vans but realized that they did not have time to do that within the 24-hour window. Ultimately, the directors voted to accept the bid without any substantive review. Shortly after the sale, the directors learned that the aggregate value of the vans was only $650,000. A few shareholders learned about the hasty process involved in selling the vans and alleged that the directors had breached their duty of care.What defense can the directors invoke to try to avoid liability for the shareholders’ claim that the directors breached their duty of care?12If a director breaches a fiduciary duty, may her actions subsequently be approved by the board of directors?
If a director breaches a fiduciary duty, may her actions subsequently be approved by the board of directors?13Can a director avoid liability for any breaches of her duty of care?
Can a director avoid liability for any breaches of her duty of care?14What does the duty of candor require of directors of a corporation?
What does the duty of candor require of directors of a corporation?15What does the duty of loyalty require of directors of a corporation?
What does the duty of loyalty require of directors of a corporation?16May a director invoke the business judgment rule to defend against a claim that the director breached the duty of loyalty?
May a director invoke the business judgment rule to defend against a claim that the director breached the duty of loyalty?17In the context of the corporate duty of loyalty, what is self-dealing?
In the context of the corporate duty of loyalty, what is self-dealing?18What is a conflicting-interest transaction?
What is a conflicting-interest transaction?19Are all conflicting-interest transactions prohibited by law?
Are all conflicting-interest transactions prohibited by law?20Are there any safe harbors that can be invoked to validate a conflicting interest transaction?
Are there any safe harbors that can be invoked to validate a conflicting interest transaction?21What is the corporate-opportunities doctrine?
What is the corporate-opportunities doctrine?22Which fiduciary duty is frequently violated by transactions that involve either self-dealing or seizing a corporate opportunity?
Which fiduciary duty is frequently violated by transactions that involve either self-dealing or seizing a corporate opportunity?23A corporation was considering buying a parcel of land that was in a flood zone. The corporation’s senior director was against the purchase. However...
A corporation was considering buying a parcel of land that was in a flood zone. The corporation’s senior director was against the purchase. However, the rest of the board believed that the risk of loss was low and was willing to approve the purchase. Before the vote on the purchase could take place, the senior director bought the parcel himself to prevent the corporation from suffering losses due to a risky purchase. The board was furious and alleged that the senior director had breached the duty of loyalty by seizing a corporate opportunity.Will the business judgment rule protect the senior director from liability for this claim?24Whose approval can validate a conflicting-interest transaction and, therefore, insulate a conflicted director from liability for that transaction?
Whose approval can validate a conflicting-interest transaction and, therefore, insulate a conflicted director from liability for that transaction?25A corporation was considering selling machinery to a venture owned by one of its directors. The director disclosed her ownership interest in the ve...
A corporation was considering selling machinery to a venture owned by one of its directors. The director disclosed her ownership interest in the venture and all material facts she knew about the transaction to the corporation. The director did not participate in any discussions about the sale or the vote on the sale. The corporation approved the sale. However, some shareholders were upset about the apparent conflict of interest in a sale of corporate machinery to one of the corporation’s own directors.Was the sale an impermissible conflicting-interest transaction?26A corporation was considering buying a shipping vessel for $5 million. The vessel was owned by a family trust. One of the corporation’s directors w...
A corporation was considering buying a shipping vessel for $5 million. The vessel was owned by a family trust. One of the corporation’s directors was a beneficiary of the trust, but she was unaware of this interest. The director both participated in the board’s discussions regarding the vessel and voted to buy the vessel. The corporation later discovered the director’s interest in the family trust. The corporation also learned that a similar shipping vessel could have been purchased for $3 million. Shareholders were upset, claiming that the director had violated her duty of loyalty because she had a conflict of interest in the sale. By voting to buy the shipping vessel, did the director engage in an impermissible conflicting-interest transaction?27A corporation was considering purchasing a corporate jet. The jet was owned by a director’s wife, but the director did not disclose this fact. Howe...
A corporation was considering purchasing a corporate jet. The jet was owned by a director’s wife, but the director did not disclose this fact. However, the director also kept quiet about everything during the purchase process, doing nothing more than voting on the final deal negotiated by others. Ultimately, the corporation purchased the jet for $10 million. The following month, the board was delighted to learn that the fair market value of similar jets was $15 million. However, several shareholders discovered that the director had failed to disclose his wife’s ownership position. These shareholders were upset that the director had engaged in a conflicting-interest transaction and wanted to sue the director for breaching his duty of loyalty to the corporation.Is the director personally liable for having engaged in this conflicting-interest transaction?28In the context of a director’s duty of loyalty, what is a corporate opportunity?
In the context of a director’s duty of loyalty, what is a corporate opportunity?29May a director ever seize a corporate opportunity without violating her duty of loyalty?
May a director ever seize a corporate opportunity without violating her duty of loyalty?30The president of a corporation received a call from local real estate developer. The developer was selling a parcel of land that was adjacent to th...
The president of a corporation received a call from local real estate developer. The developer was selling a parcel of land that was adjacent to the corporation’s manufacturing plant. The developer asked if the corporation would be interested in bidding on the parcel. The president told the developer that she would look at the parcel. After viewing the parcel, the president realized that the developer had priced the parcel well below fair market value, making it a great deal for anyone. The president then decided to purchase the land for herself.Did the president breach a fiduciary duty?31A chief financial officer (CFO) of a corporation that managed restaurants learned about an upcoming sale of an extremely popular food hall. The CFO...
A chief financial officer (CFO) of a corporation that managed restaurants learned about an upcoming sale of an extremely popular food hall. The CFO was interested in purchasing the food hall for herself but knew that the corporation might also be interested in acquiring the hall.Is there any way the CFO may buy the food hall for herself without breaching her duty of loyalty?32What fiduciary duties do directors owe the corporation?
What fiduciary duties do directors owe the corporation?33Generally, do a corporation’s key officers owe the corporation the same fiduciary duties as the corporation’s directors?
Generally, do a corporation’s key officers owe the corporation the same fiduciary duties as the corporation’s directors?34Generally, do majority shareholders have any fiduciary duties to minority shareholders?
Generally, do majority shareholders have any fiduciary duties to minority shareholders?35Are corporations ever required to indemnify their directors who have been held liable for a breach of duty?
Are corporations ever required to indemnify their directors who have been held liable for a breach of duty?36What is permissive indemnification?
What is permissive indemnification?37Is a corporate indemnification ever prohibited?
Is a corporate indemnification ever prohibited?38May a corporation advance funds to pay for or reimburse a director?
May a corporation advance funds to pay for or reimburse a director?39May a court order indemnification or an advance for expenses?
May a court order indemnification or an advance for expenses?40Angry shareholders sued a director of a corporation alleging the director had breached a variety of duties. Due to the nature of the claims, the co...
Angry shareholders sued a director of a corporation alleging the director had breached a variety of duties. Due to the nature of the claims, the corporation’s insurance company refused to cover the director’s legal fees. After a lengthy trial, the director was ultimately found to have not violated any fiduciary duties and was exonerated. The director had spent $100,000 in professional fees defending herself.Is the director entitled to reimbursement from the corporation for these fees?41Do the members of a member-managed limited-liability company (LLC) always owe fiduciary obligations to the other members and the company itself?
Do the members of a member-managed limited-liability company (LLC) always owe fiduciary obligations to the other members and the company itself?42Do the members of a manager-managed LLC always owe fiduciary obligations to the other members and the company itself?
Do the members of a manager-managed LLC always owe fiduciary obligations to the other members and the company itself?43May an LLC’s operating agreement ever modify the duty of loyalty, the duty of care, or the obligation of good faith and fair dealing in a way that ...
May an LLC’s operating agreement ever modify the duty of loyalty, the duty of care, or the obligation of good faith and fair dealing in a way that is manifestly unreasonable?