Corporations - An Open Source Casebook, v2014 | Brian JM Quinn | February 22, 2013

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Corporations - An Open Source Casebook, v2014

by Brian JM Quinn Show/Hide

This playlist is intended to be used as a “virtual” casebook for an introductory corporations class. This virtual casebook is an experiment using the H20 platform of Harvard's Berkman Center. This casebook can be printed and used in a hard copy form, or students can read and access the cases and materials online. The materials in this casebook follow a format that is familiar to a student in any of my previous corporations classes.

While the materials in this casebook start with the Delaware corporate code, we will start with an online course covering the basic concepts of Agency as well as an online course covering the basic concepts of Partnership.  Students should plan to complete both of these courses, including the accompanying quizzes in Canvas, by the date set forth in the syllabus.

Then we turn to the Delaware corporate code. While the various conceptual approaches to the corporate law are extremely interesting and important, it is critical that law students master the code.  Although we could study the Model code or the Massachusetts code, for most corporate lawyers, the Delaware corporate law will be central to their practice.

Beyond the code, Delaware has a very deep corporate common law. It is in the corporate common law that the courts have developed the law of corporate fiduciary duties. It is through fiduciary duties that the corporate law attempts to regulate the relationship between shareholders and the corporation, between managers and the corporation, as well as the relationships of controlling shareholders and minority shareholders. Fiduciary duties are tested most often in the context of corporate takeovers. The corporate takeover materials in this casebook attempt to highlight the most important issues in takeover situations as well as the court's doctrinal efforts to mitigate the transaction costs that arise in these situations.

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  1. 2 Show/Hide More DGCL
    Original Creator: Brian JM Quinn

    Although every state has its own corporate law, here we focus on the Delaware corporate law. We do this for one very important reason: the vast majority of public corporations and a significant number of private corporations are incorporate in Delaware. Because of the ubiquity of the Delaware corporation, the Delaware corporate law has become a de facto standard for the United States. Whether you ultimately end up practicing law in Massachusetts, New York, California, or London, your practice will regularly engage with Delaware corporations. As a consequence, having a strong working-knowledge of the Delaware corporate code will be vital to a successful corporate law practice.

    In the following sections we will walk through the code and apply its principles.

    1. 2.1 Show/Hide More Formation
      Original Creator: Brian JM Quinn
      1. 2.1.1 Show/Hide More DGCL Sec. 101
        Original Creator: Brian JM Quinn
      2. 2.1.2 Show/Hide More DGCL Sec. 102
        Original Creator: Brian JM Quinn
        Contents of Certificate of Incorporation
        1. 2.1.3.1 Show/Hide More Walkovszky v. Carlton
          Original Creator: Brian JM Quinn
          Piercing the corporate veil
        2. 2.1.3.2 Show/Hide More Fletcher v. Atex Inc.
          Original Creator: Brian JM Quinn
          Alter ego. Veil piercing
        3. 2.1.3.3 Show/Hide More Kinney Shoe Corp. v. Polan
          Original Creator: Brian JM Quinn
          Piercing the corporate veil
        4. 2.1.3.4 Show/Hide More United Elec. Workers v. 163 Pleasant Street Corp.
          Original Creator: Brian JM Quinn
          Piercing the corporate veil
      3. 2.1.4 Show/Hide More DGCL Sec. 103
        Original Creator: Brian JM Quinn
        Execution and acknowledgement of certificate of incorporation
      4. 2.1.5 Show/Hide More DGCL Sec. 106
        Original Creator: Brian JM Quinn
        Commencement of Corporate Existence
      5. 2.1.6 Show/Hide More DGCL Sec. 107
        Original Creator: Brian JM Quinn
        Powers of incorporator
      6. 2.1.7 Show/Hide More DGCL Sec. 108
        Original Creator: Brian JM Quinn
        Organizational Meeting
      7. 2.1.8 Show/Hide More DGCL Sec. 111
        Original Creator: Brian JM Quinn
        Jurisdiction of the Chancery Court
      1. 2.2.1 Show/Hide More DGCL Sec. 121
        Original Creator: Brian JM Quinn
        General Powers
      2. 2.2.2 Show/Hide More DGCL Sec. 122
        Original Creator: Brian JM Quinn
        Specific Powers
      3. 2.2.3 Show/Hide More Theodora Holding Corporation v. Henderson
        Original Creator: Brian JM Quinn
        122 – Corporate charity
        1. 2.2.4.1 Show/Hide More DGCL Sec. 361 [Public Benefit Corporations]
          Original Creator: Brian JM Quinn
          Effective August 1, 2013
        2. 2.2.4.2 Show/Hide More Press release: What Are Massachusetts Benefit Corporations?
          Chapter 238 of the Acts of 2012 authorized a new type of entity which will be administered by
          our Division: the Benefit Corporation.
      4. 2.2.5 Show/Hide More DGCL Sec. 123
        Original Creator: Brian JM Quinn
      5. 2.2.6 Show/Hide More DGCL Sec. 124
        Original Creator: Brian JM Quinn
        Ultra vires
    2. 2.3 Show/Hide More Bylaws
      Original Creator: Brian JM Quinn
      1. 2.3.1 Show/Hide More DGCL Sec. 109
        Original Creator: Brian JM Quinn
        Bylaws
      2. 2.3.2 Show/Hide More DGCL Sec. 110
        Original Creator: Brian JM Quinn
        Emergency bylaws and other powers in emergency
      3. 2.3.3 Show/Hide More Boilermakers Local 154 Retirement Fund V. Chevron Corporation
        Original Creator: Brian JM Quinn
        Can directors unilaterally adopt bylaws to restrict where shareholders might bring litigation against the board or the corporation?
    3. 2.4 Show/Hide More Proxy Access v2014
      Original Creator: Brian JM Quinn
      DGCL Provisions related to proxy access
      1. 2.4.1 Show/Hide More DGCL Sec. 112
        Original Creator: Brian JM Quinn
        Proxy Access
      2. 2.4.2 Show/Hide More DGCL Sec. 113
        Original Creator: Brian JM Quinn
        Expense Reimbursement following Proxy Contest
      1. 2.5.1 Show/Hide More DGCL Sec. 141
        Original Creator: Brian JM Quinn
      2. 2.5.2 Show/Hide More Aronson v. Lewis
        Original Creator: Brian JM Quinn
        Statement of the Business Judgment Rule
      3. 2.5.3 Show/Hide More DGCL Sec. 144 - Interested director transactions
        Original Creator: Brian JM Quinn
        The following provision of the statute provides a safe harbor for interested director transactions. If the requirements of the safe harbor are complied with then an interested director transaction will not be void or voidable because of the participation of the director. It may still, however, be subject to attack as a violation of the duty of loyalty and the interested director may be required to prove the entire fairness of the transaction. 
      4. 2.5.4 Show/Hide More DGCL Sec. 145
        Original Creator: Brian JM Quinn
        Indemnification
      1. 2.6.1 Show/Hide More DGCL Sec. 151
        Original Creator: Brian JM Quinn
        Classes of Shares
      2. 2.6.2 Show/Hide More DGCL Sec. 157
        Original Creator: Brian JM Quinn
      3. 2.6.3 Show/Hide More DGCL Sec. 160
        Original Creator: Brian JM Quinn
      4. 2.6.4 Show/Hide More DGCL Sec. 161
        Original Creator: Brian JM Quinn
        Issuance of new shares by the board
      5. 2.6.5 Show/Hide More DGCL Sec. 170
        Original Creator: Brian JM Quinn
        Dividends
      6. 2.6.6 Show/Hide More DGCL Sec. 202
        Original Creator: Brian JM Quinn
        Restrictions on stock transfers permitted.
      7. 2.6.7 Show/Hide More DGCL Sec. 203
        Original Creator: Brian JM Quinn
        State anti-takeover law/business combination statute
      1. 2.7.1 Show/Hide More DGCL Sec. 211
        Original Creator: Brian JM Quinn
        Meetings of Stockholders, Quorum, and Notice
      2. 2.7.2 Show/Hide More DGCL Sec. 212
        Original Creator: Brian JM Quinn
        Shareholder Voting Rights
      3. 2.7.3 Show/Hide More DGCL Sec. 213
        Original Creator: Brian JM Quinn
        Fixing Date for Determination of Stockholders of Record
      4. 2.7.4 Show/Hide More DGCL Sec. 214
        Original Creator: Brian JM Quinn
        Cumulative Voting
      5. 2.7.5 Show/Hide More DGCL Sec. 216
        Original Creator: Brian JM Quinn
        Quorum and Required Votes
      6. 2.7.6 Show/Hide More DGCL Sec. 229
        Original Creator: Brian JM Quinn
        Waiver of Notice
        1. 2.7.7.1 Show/Hide More DGCL Sec. 219
          Original Creator: Brian JM Quinn
          Access to stockholder lists
        2. 2.7.7.2 Show/Hide More Crown Emak Partners, LLC. v. Kurz
          Original Creator: Brian JM Quinn
          Sec 219 and record holders
      7. 2.7.8 Show/Hide More DGCL Sec. 222
        Original Creator: Brian JM Quinn
        Notice Requirements
      8. 2.7.9 Show/Hide More DGCL Sec. 223
        Original Creator: Brian JM Quinn
        Director vacancies
      9. 2.7.10 Show/Hide More DGCL Sec. 146
        Original Creator: Brian JM Quinn
        Force-the-Vote
        1. 2.7.11.1 Show/Hide More DGCL Sec. 109
          Original Creator: Brian JM Quinn
          Bylaws
      10. 2.7.12 Show/Hide More DGCL. Sec. 228
        Original Creator: Brian JM Quinn
        Action by Written Consent
      11. 2.7.13 Show/Hide More Shareholder Resolutions
        Original Creator: Brian JM Quinn
        Although the corporate law makes it clear that management of the corporation is the prerogative of the board of directors, shareholders have the right to vote for directors and for other matters that may come before the shareholders at annual or special meetings. As a result, access to the ballot is an extremely important issue, as are the conditions upon which the board may be required to permit shareholders to take up questions related to governance of the corporation. Access to the proxy is governed both by state corporate law as well as the Federal securities laws.
        1. 2.7.13.2 Show/Hide More Lovenheim v. Iroquois Brands Ltd.
          Original Creator: Brian JM Quinn
          Shareholder Resolutions
        2. 2.7.13.3 Show/Hide More Bebchuk v. Electronic Arts Inc.
          Original Creator: Brian JM Quinn
          Shareholder Proposals
        3. 2.7.13.4 Show/Hide More CA INC. v. AFSCME Employees Pension Plan
          Original Creator: Brian JM Quinn
          Bylaw amendment, director voting reimbursement, 141(a) and shareholder proposal.
        4. 2.7.13.5 Show/Hide More Airgas Inc. v. Air Products and Chemicals
          Original Creator: Brian JM Quinn
          Legal validity of bylaw amendments
      1. 2.8.1 Show/Hide More DGCL Sec. 245
        Original Creator: Brian JM Quinn
        Restated Certificate of Incorporation
      2. 2.8.2 Show/Hide More DGCL Sec. 242
        Original Creator: Brian JM Quinn
        Amendment to Certificate
  2. 3 Show/Hide More Shareholder Litigation
    Original Creator: Brian JM Quinn
    Before we turn to too much more case law, it is important to understand the particular procedural aspects of the shareholder litigation that we will be reading. Because the litigation involves shareholders, directors, and the corporation, it is procedurally different than litigation you may have seen until now in law school. The source of those differences is often a question about who gets to speak for and vindicate the rights of the corporation – the board or the shareholder. Resolution of this question is especially important when it is the board itself that is accused of wrong-doing against the corporation.
    1. 3.1 Show/Hide More Direct and Derivative Suits
      Original Creator: Brian JM Quinn

      Shareholders may bring different kinds of litigation against the corporation. Direct suits are brought on behalf of the shareholder in the shareholder's position as shareholder. Derivative suits are brought by shareholders on behalf of the corporation and seek to vindicate the rights of the corporation.

      Understanding the distinction between direct and derivative suits can be confusing. However, there is a coherent test for determining which is which.

      1. 3.1.1 Show/Hide More DGCL Sec. 327
        Original Creator: Brian JM Quinn
        Derivative Suits
      2. 3.1.3 Show/Hide More Tooley v. Donaldson Lufkin, & Jenrette, Inc.
        Original Creator: Brian JM Quinn
        Test for determining whether shareholder litigation is direct or derivative.
      3. 3.1.4 Show/Hide More Gentile v. Rossette
        Original Creator: Brian JM Quinn
        Because there are important procedural hurdles to bringing a derivative suit, it oftentimes becomes an important point of contention between the parties whether the particular litigation is direct or derivative. This case is an example of that in action.
    2. 3.2 Show/Hide More Demand and Demand Futility
      Original Creator: Brian JM Quinn

      In derivative litigation, procedure is extremely important. In order to preserve the central importance of the board in the management of the corporation, courts will require shareholders who wish to sue on behalf the corporation to jump through certain hoops.

      This section provides an overview to procedural requirements with respect to “demand” and “demand futility.”

      1. 3.2.3 Show/Hide More Spiegel v. Buntrock
        Original Creator: Brian JM Quinn

        Deriviative litigation requires stockholder plaintiffs to either make a demand on the board unless such a demand would be futile. If a plaintiff makes a demand on the board and that demand is rejected, is that the end of stockholder's litigation?

        The following case, Spiegel, illustrates the effect on litigation of making demand on the board and the standard of review a court will use when asked to review a board's decision to refuse a stockholder's demand.

      2. 3.2.4 Show/Hide More Rales v. Blasband
        Original Creator: Brian JM Quinn
        Demand and demand futility standards
      3. 3.2.6 Show/Hide More Shoen v. SAC Holding Corp.
        Original Creator: Brian JM Quinn Current Version: Brian JM Quinn

        Shoen is a Nevada case. In Shoen, the Nevada Supreme Court adopts the Delaware standards (Aronson and Rales) for determination of demand futility. The Nevada high court's discussion of both standards provides a clear overview and restatement of both tests and their application to pleadings.

        Shoen is also an example of how state courts around the country look to the Delaware courts for guidance as they form their corporate law.  Through cases like Shoen you can begin to appreciate Delaware's outsized influence in the corporate law arena.

      4. 3.2.7 Show/Hide More Brehm v. Eisner
        Original Creator: Brian JM Quinn
        When a court is asked to rule on a Rule 23.1 motion to dismiss, the court will apply the Aronson or Rales standards to each member of the board in order to determine whether a majority of the board was disinterested or independent such that a majority of the board could fairly consider the challenged transaction or the plaintiff's demand. 
    3. 3.3 Show/Hide More Special Litigation Committees
      Original Creator: Brian JM Quinn
      In situations where demand is futile, shareholders can file derivative litigation without making demand. Does that mean that boards have forever lost control over the derivative litigation? In some circumstances the answer is no. The following cases lay out the doctrine with respect to how a board can retake control over derivative litigation in later stages.
      1. 3.3.1 Show/Hide More Zapata Corp. v. Maldonado
        Original Creator: Brian JM Quinn
        Special litigation committees and control over derivative litigation in later stages.
      2. 3.3.2 Show/Hide More In re Oracle Corp. Derivative Litigation
        Original Creator: Brian JM Quinn
        Special litigation committee
  3. 4 Show/Hide More Fiduciary Duties of Directors
    Original Creator: Brian JM Quinn

    Although the Delaware code – and the corporate codes of all the other states for that matter – do a good job of describing the corporate form and the mechanics of operating this form, with the exception of Section 144, the code says precious little about the standards to which boards of directors who are managing the corporation will be held. That is because corporate fiduciary duties are a product of the common law and not statute.

    In the following sections we examine the various core duties of corporate directors. Although these duties are fewer in number than the fiduciary obligations of agents, they are entirely consistent.

    1. 4.1 Show/Hide More Standards of Conduct and Standards of Review
      The question is often asked: to whom do corporate directors owe their duties? And, how are the actions of directors evaluated ex post by courts? In Trados, an excerpt of which follows, Vice Chancellor Laster describes the standards of conduct against which director action is measured as well as Delaware's various standards of reviews.
      1. 4.2.1 Show/Hide More Aronson v. Lewis
        Original Creator: Brian JM Quinn
        Statement of the Business Judgment Rule
      2. 4.2.3 Show/Hide More Williams v. Geier
        Original Creator: Brian JM Quinn
        Board decisions to amend the certificate of incorporation and business judgment protection.
      3. 4.2.4 Show/Hide More Smith v. Van Gorkom
        Original Creator: Brian JM Quinn
        The Duty of Care in the context of a corporate acquisition
      4. 4.2.6 Show/Hide More Malpiede v. Townson
        Original Creator: Brian JM Quinn
        Effect of 102(b)(7) provisions on litigation
      1. 4.3.2 Show/Hide More Dweck v. Nasser
        Original Creator: Brian JM Quinn
        How does the duty of loyalty play out in the context of corporate officers and directors.
      2. 4.3.3 Show/Hide More Entire Fairness
        Original Creator: Brian JM Quinn
        What is entire fairness? The court in Weinberger describes entire fairness as fair price and fair dealing.
        1. 4.3.3.1 Show/Hide More Weinberger v. UOP, Inc.
          Original Creator: Brian JM Quinn
          Entire Fariness (Fair price and fair dealing)
        1. 4.3.4.1 Show/Hide More Sutherland v. Sutherland
          Original Creator: Brian JM Quinn
          The role of 144 in providing a safe harbor for interested director transactions.
        2. 4.3.4.2 Show/Hide More Fliegler v. Lawrence
          Original Creator: Brian JM Quinn
          144 – interested director transactions
        1. 4.3.5.1 Show/Hide More Broz v. Cellular Info. Systems Inc.
          Original Creator: Brian JM Quinn
          Corporate Opportunity Doctrine
        1. 4.3.6.1 Show/Hide More Oversight Claims
          Original Creator: Brian JM Quinn
          1. 4.3.6.1.1 Show/Hide More Stone v. Ritter
            Original Creator: Brian JM Quinn
      3. 4.3.7 Show/Hide More Duty of Candor
        Original Creator: Brian JM Quinn
        1. 4.3.7.1 Show/Hide More Stroud v. Grace
          Original Creator: Brian JM Quinn
          Duty of Candor and disclosure obligations under the DGCL
        2. 4.3.7.2 Show/Hide More