MANAGEMENT 961

BUSINESS LAW

2015Session 2

CORPORATIONS

Shareholder Derivative Litigation

Suit By Shareholder on Behalf of Company

Requires Demand or Demand Futility Demand

Wrong Done and Complaint Made to Board

Board Fails to Act

Demand Futility

Doubt Regarding Whether Directors are Disinterested and Independent, or

Doubt the Challenged Action/Inaction Was Product of Valid Exercise of Business Judgment

2

CORPORATIONS

In Re The Walt Disney Company Fiduciary Duties Business Judgment Rule

A presumption that “in making a business decision the directors of a corporation acted on an informed basis . . . and in the honest belief that the action taken was in the best interest of the company [and its shareholders].”

Presumption applies when no evidence of “fraud, bad faith, or self-dealing”

Board’s decision upheld unless can’t be “attributed to any rational business purpose.”

Presumption rebutted by evidence of breach of fiduciary duty, after which director must demonstrate transaction “entirely fair”

Not ordinarily apply where board inaction Rarely overcome

3

SARBANES-OXLEY

Applies to Public Companies

Special Accounting Rules

Restricts Use of Advisors Who Audit (or Auditors Who Advise)

Enhanced Criminal Provisions

Destruction, Alteration and Falsification of Records

Longer Statute of Limitations for Securities Fraud

Executive Comp Rules

Clawbacks

4

SARBANES-OXLEY

Employee Protections Civil Remedy – Section 806

“No [public] company . . . or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any manner discriminate against an employee”

For Providing or Causing to Be Provided: Information the employee “reasonably believes” is wire

fraud, bank fraud, mail fraud, securities fraud, or securities violation

To federal law enforcement, member of Congress or a Congressional committee, or “any person with supervisory authority over the employee (or such other person . . . who has authority to investigate, discover, or terminate misconduct)”

For Filing a Claim, Testifying in or Assisting a Proceeding Related to Fraud or Securities Violations 5

SARBANES-OXLEY

Employee Protections

Civil Remedy – Section 806

Actual and Compensatory Damages

Criminal Penalties – Section 1107

“knowingly, with the intent to retaliate, takes any

action harmful to any person . . . For providing to a

law enforcement officer any truthful information

relating to the commission or possible commission

of any Federal offense. . .”

Fine and Prison

6

DODD-FRANK ACT

Passed in 2010

Creates Reward System for Whistleblowing to

SEC

Circumvents Company Reporting Procedures

7

AGENCY

Agency Relationship Formed

By Agreement

By Ratification

By Estoppel

By Operation of Law

8

AGENCY

Agent as Fiduciary

Employee

Work for Hire

Independent Contractors & Third Parties

Nature of Work

Contract Language

Exercise of Authority

9

AGENCY

Duties and Rights of Agents Duties:

Good faith performance

Notification and reporting

Loyalty

Obedience

Accounting

Rights:

Compensation

Accounting

No specific performance if no contract

10

AGENCY

Duties and Rights of Principal

Duties:

Compensation

Cooperation

Working conditions

Rights and Remedies:

Constructive trust

Avoidance

Indemnification

11

CONTRACTS

• Agreement

– Offer

– Acceptance

• Consideration

• Capacity

• Legality

12

CONTRACTS

Objective Theory

Parol Evidence Rule

Plain Meaning

Resolution of ambiguities

Statute of Frauds

13

CONTRACTS

Bilateral vs. Unilateral

Unilateral = Action in exchange for promise

Bilateral = Promise for promise

Express vs. Implied

Express = Terms are clear

Implied-in-Fact = Implied by conduct

Implied-in-Law = Equitable contract Unjust Enrichment

Quantum Meruit

14

CONTRACTS

Valid vs. Void vs. Voidable

Valid = One or more parties may enforce

Void = No enforceable legal obligation

Voidable = Valid contract but can be avoided or

ratified by one or more

15

CONTRACTS

Offers

Criteria Serious intention

Reasonably certain terms

Offer communicated

Termination of Offer Revocation

By own terms

Counter-offer

By law (lapse, destruction, death, illegal)

16

CONTRACTS

Acceptance

Mirror Image Rule (UCC Different)

Non-Conforming acceptance may be rejection and counter-

offer

Mailbox Rule

Acceptance effective when sent

Revocation of acceptance effective when received

17

CONTRACTS

Consideration

Legal Sufficiency vs. Adequacy

Legal (In)sufficiency

Pre-existing duty

Past consideration

Illusory promise

Freedom of contract

18

NATIONAL AMATEUR BOWLERS V.

TASSOS AND MASSA

19

OPERA CO. OF BOSTON V. WOLF

TRAP FOUNDATION

20

STAMBOVSKY V. ACKLEY

21

WATKINS V. PETRO-SEARCH

22

RISK ALLOCATION SUMMARY

Contractual Indemnity Fair notice requirements

Express negligence

Conspicuousness

Insurance Duty to defend

Scope of coverage “Occurrence”

“Eight corners” rule

Duty to indemnify Scope of coverage

Good faith and fair dealing

23

WORKING WITH LAWYERS

Time is Money, Talk Is Not Cheap

Ask Questions About Cost

Your Lawyer Can Budget, But Must Be Told

Receive Regular Reports

Remember Cost of Reporting / Phone Calls

Consider Alternative Fee Arrangements

Hourly vs. Contingency vs. Partial Contingency vs.

Reverse Contingency vs. Fixed Fee

24