Business organizations : cases and materials / by Melvin Aron Eisenberg, Koret Professor of Law, University of California at Berkeley; James D. Cox, Brainerd Currie Professor of Law, Duke University Law School.
2014
KF1414 .E357 2014 (Map It)
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Title
Business organizations : cases and materials / by Melvin Aron Eisenberg, Koret Professor of Law, University of California at Berkeley; James D. Cox, Brainerd Currie Professor of Law, Duke University Law School.
Published
St. Paul, MN : Foundation Press, [2014]
Call Number
KF1414 .E357 2014
Edition
Eleventh edition, [unabridged].
ISBN
9781609304355
1609304357
9781628103861 (pbk. ; teacher's manual)
1628103868 (pbk. ; teacher's manual)
1609304357
9781628103861 (pbk. ; teacher's manual)
1628103868 (pbk. ; teacher's manual)
Description
xlvi, 1,506 pages : illustrations ; 27 cm.
System Control No.
(OCoLC)874098757
Note
"Unabridged"--Cover.
Bibliography, etc. Note
Includes bibliographical references and index.
Series
Other Editions
Revision of: Eisenberg, Melvin Aron. Corporations and other business organizations. 10th ed., unabridged. New York : Foundation Press Thomson/West, 2011
Record Appears in
Added Author
Table of Contents
Preface
III
Table Of Cases
XXIX
ch. 1
Agency; The Sole Proprietorship
1
1.
The Sole Proprietorship
1
2.
Agency
2
A.
The Authority of an Agent
2
Speed v. Muhanna
3
Note on Sources of Agent's Authority
5
Morris Oil Co. v. Rainbow Oilfield Trucking, Inc.
13
Note on Partially and Undisclosed Principal
17
Note on Ratification
17
Note on Agent's Liability and Rights
19
B.
The Agent's Tortious Conduct
20
Koutsogiannis v. BB&T
22
C.
The Agent's Duty of Loyalty
24
Jensen & Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure
24
Tarnowski v. Resop
24
Restatement Third [§] 8.05, Illustration 1
27
Reading v. Attorney-General
28
Rash v. J.V. Intermediate, Ltd.
29
D.
Imputation of Agent's Knowledge
29
Carter v. Gugliuzzi
29
ch. 2
A Primer on Accounting and Finance
33
1.
An Introduction to Accounting and Financial Statements
33
Lawrence A. Cunningham, Introductory Accounting, Finance and Auditing for Lawyers
33
David R. Herwitz & Matthew J. Barrett, Accounting for Lawyers
34
Note on the Link Between the Income Statement and the Balance Sheet
37
R. Hamilton, Fundamentals of Modern Business
38
Note on Accrual Accounting and the Conventions of Accountings
39
Note on Accounting and Audit Standard Setters and the Audit Opinion
42
2.
Present Value: Its Utility and Calculation
43
A.
Techniques of Determining Present Value
43
Problems
49
B.
Stock Valuation Model
49
C.
Valuing a Business
51
Jeffrey D. Bauman, Alan D. Palmiter, and Frank Partnoy, The Old Man and the Tree: A Parable of Valuation, in Corporations[—]Law and Policy
51
3.
What Is Risk and Diversification?
57
W. Klein & J. Coffee, Business Organization and Finance
57
Note on Joy v. North
59
Howell E. Jackson, Louis Kaplow, Steven M. Shavell, W. Kip Viscusi & David Cope, Analytical Methods for Lawyers
60
Note on the Capital Asset Pricing Model, Systemic Risk, and Estimating Returns
64
4.
Market Efficiency: The Hypothesis and Qualifications
67
Richard A. Brealey, Stewart C. Myers & Franklin Allen, Principles of Corporate Finance
67
Daines & Hanson, The Corporate Law Paradox: The Case for Restructuring Corporate Law
71
ch. 3
Partnerships
73
Introductory Note
73
1.
What Constitutes a General Partnerships?
73
Hilco Property Services, Inc. v. United States
73
Martin v. Peyton
74
Lupien v. Malsbenden
78
Note on the Formation of Partnerships
80
2.
The Legal Nature of a Partnership
82
Note on the Legal Nature of a Partnership: Entity or Aggregate Status
82
3.
The Ongoing Operation of Partnerships
84
A.
Management
84
Summers v. Dooley
84
Sanchez v. Saylor
86
Note on the Management of Partnerships
87
Note on What Law Governs the Internal Affairs of Partnerships
89
B.
Indemnification and Contribution
89
Note on Indemnification and Contribution
90
C.
Distributions, Remuneration, and Capital Contributions
90
Question
91
D.
Capital Accounts and Draws
91
William Klein, John C. Coffee & Frank Partnoy, Business Organization and Finance
91
4.
The Authority of a Partner
95
RNR Investments Limited Partnership v. Peoples First Community Bank
95
Northmon Investment Company v. Milford Plaza Associates
99
Note on the Authority of a Partner
100
5.
Liability for Partnership Obligations
101
Davis v. Loftus
101
Note on Liability for Partnership Obligations
102
6.
Partnership Interests and Partnership Property
103
Rapoport v. 55 Perry Co.
104
Bauer v. Blomfield Co.
107
Note on Partnership Property
111
Note on Partnership Interests
112
7.
The Partner's Duty of Loyalty
114
Meinhard v. Salmon
114
Latta v. Kilbourn
118
Enea v. Superior Court
119
Robert W. Hillman, Allan W. Vestal & Donald J. Weidner, The Revised Uniform Partnership Act [§] 404
122
Note on Suits by a Partner Against a Partnership
123
8.
Dissolution (I): Dissolution by Rightful Election
124
Girard Bank v. Haley
125
Creel v. Lilly
126
Disotell v. Stiltner
131
McCormick v. Brevig
132
Farnsworth v. Deaver
136
Note on Distributions in Dissolution and "Services Partners"
138
Note on Joint Ventures
140
Page v. Page
141
Leff v. Gunter
143
Rosenfeld, Meyer & Susman v. Cohen
144
Note on Partnership Breakup Under the UPA
144
Note on Partnership Breakup Under RUPA
147
Robert W. Hillman, Allan W. Vestal & Donald J. Weidner, The Revised Uniform Partnership Act [§] 701
149
Corrales v. Corrales
150
Robert W. Hillman, Allan W. Vestal & Donald J. Weidner, The Revised Uniform Partnership Act [§] 801
151
9.
Dissolution (II): Dissolution by Judicial Decree and Wrongful Dissolution
151
Drashner v. Sorenson
152
Note on Wrongful Dissolution
155
Note on the Expulsion of a Partner
155
Levy v. Nassau Queens Medical Group
158
Crutcher v. Smith
158
10.
Limited Partnerships
159
A.
The Uniform Limited Partnership Acts
159
B.
Formation of Limited Partnerships
159
Note
160
C.
Liability of Limited Partners
160
Gateway Potato Sales v. G.B. Investment Co.
160
D.
Corporate General Partners
167
Note on Corporate General Partners
167
In re USA Cafes, L.P. Litigation
167
E.
The Taxation of Unincorporated Business Organizations
172
F.
Fiduciary Obligations
174
Gotham Partners, L.P. v. Hallwood Realty Partners, L.P.
174
Note on Gotham Partners v. Hallwood
180
11.
Limited Liability Partnerships
181
Note on Limited Liability Partnerships
181
Ederer v. Gursky
182
Bromberg & Ribstein, Limited Liability Partnerships, The Revised Uniform Partnership Act, and the Uniform Limited Partnership Act
188
Note on Liability for Involvement
189
ch. 4
The Foundations of a Corporation
191
1.
The Characteristics of a Corporation
191
2.
The Architecture of Corporate Law
192
3.
Which State's Law Governs a Corporation's Internal Affairs?
193
VantagePoint Venture Partners 1996 v. Examen, Inc.
193
Friese v. Superior Court
200
4.
Selecting a State of Incorporation
205
5.
Organizing a Corporation
211
6.
The Basic Types of Financial Securities
214
Introduction to Types of Debt and Debt Covenants
216
7.
The Seductive Qualities of Debt
217
John D. Ayer, Guide to Finance for Lawyers
218
Note on the Tax Shield of Debt
220
Note on Leverage and the Risk of Financial Distress
221
8.
Equitable Subordination of Shareholder Claims
222
Note on Equitable Subordination of Shareholder Claims
222
Gannett Co. v. Larry
224
Note on Equitable Subordination vs Piercing the Veil
224
Note on Characterization of Promoter's Advances.
224
9.
Requisites for Valid Action by the Board
226
Fogel v. U.S. Energy Systems, Inc.
226
Note on Requisites for Valid Action by the Board
229
Note on Board Committees
232
10.
The Normal Requisites for Valid Shareholder Action
232
Note on the Normal Requisites for Valid Shareholder Action
232
11.
The Election of Directors
234
A.
Staggered Boards
234
Marcel Kahan & Edward Rock, Embattled CEOs
235
B.
Cumulative Voting
236
C.
Plurality Voting
240
Bryn R. Vaaler, Majority Election of Directors: Where Are We Today?
240
Marcel Kahan & Edward Rock, Embattled CEOs
241
D.
Short Slates
242
Note on Short Slates
242
12.
Removal of Directors
243
Note on the Removal of Directors
243
13.
Requisites for Valid Action by Corporate Officers
244
Note on Authority
244
Note on the Authority of Corporate Officers
244
Schoonejongen v. Curtiss Wright Corp
248
14.
The Classical Ultra Vires Doctrine
248
Introductory Note
249
15.
The Objective and Conduct of the Corporation
251
A.
The Maximization of Shareholder Wealth
251
Henry Hu, New Financial Products, The Modern Process of Financial Innovation, and the Puzzle of Shareholder Welfare
251
B.
Interests Other Than Maximization of Shareholders' Wealth
253
Note on Dodge v. Ford Motor Co.
253
Note on Other Constituencies Under Delaware Law
255
Other Constituency Statutes
258
Note on Benefit and Flexible Purpose Corporations
259
A.P. Smith Mfg. Co. v. Barlow
261
Note on the Conduct of the Corporation
265
Milton Friedman, The Social Responsibility of Business Is to Increase Its Profits
266
Note on Political Contributions by Corporations
267
ch. 5
The Legal Structure of Publicly Held Corporations
269
Melvin A. Eisenberg, The Structure of the Corporation 1
269
Introductory Note
269
1.
The Legal Distribution of Power Between the Board and the Shareholders, and Equitable Limits on the Board's Legal Power
270
A.
The Legal Distribution of Power Between the Board and the Shareholders
270
Charlestown Boot & Shoe Co. v. Dunsmore
271
People ex rel. Manice v. Powell
272
B.
Equitable Limits on the Board's Legal Powers
273
Schnell v. Chris-Craft Industries, Inc
273
A.A. Berle & G. Means, The Modern Corporation and Private Property
275
Blasius Industries, Inc. v. Atlas Corp
275
Note on Further Proceedings in Blasius
281
Note on the Business Judgment Rule
282
C.
The Role of Bylaws in the Allocation of Power Between the Board and the Shareholders
282
CA, Inc. v. AFSCME Employees Pension Plan
284
2.
Corporate Governance and the Rise of Institutional Shareholders
292
A.
Shareholder Voting
292
Robert B. Thompson & Paul H. Edelman, Corporate Voting
292
Note on Weighted Voting in Publicly Held Corporations
294
Note on Empty Voting and Record Date(s)
296
B.
Financial Institutions and Their Advisors
299
Note on the Role of Shareholders Under Modern Corporate Practice
299
Note on the Problem of Free-Riding
309
Ronald J. Gilson & Jeffrey N. Gordon, The Agency Costs of Agency Capitalism: Activist Investors and the Revaluation of Governance Rights
310
Note on Impact of Activism on Shareholder Value
310
Bray, Jiang, Partnoy & Thomas, Hedge Fund Activism, Corporate Governance, and Firm Performance
311
3.
Vote Buying
315
Portnoy v. Cryo-Cell International, Inc.
315
4.
Funding Proxy Contests
321
Rosenfeld v. Fairchild Engine and Airplane Corp.
321
Heineman v. Datapoint Corp.
328
5.
The Allocation of Power Between the Board and the CEO
328
Note on the Management of Publicly Held Corporations
328
Marcel Kahan & Edward Rock, Embattled CEOs
330
Jill E. Fisch, Book Review of Macey, The Overstated Promise of Corporate Governance
331
Note on the Role of Takeovers in the Structure of the Corporation
332
ch. 6
Shareholder Informational Rights & Proxy Voting
335
1.
Shareholder Information Rights Under State and Federal Law
335
A.
Inspection of Books and Records
335
Saito v. McKesson HBOC, Inc
336
Note on Shareholders' Inspection Rights
340
B.
The Stockholder List in a Dematerialized World
343
Concept Release on the U.S. Proxy System
343
Note on Consents and Who's a Record Holder
349
F. Balotti & J. Finkelstein, The Delaware Law of Corporations and Business Associations [§] 7.45
350
C.
Reporting Under State Law
350
D.
An Overview of the SEC and the Securities Exchange Act
352
SEC, The Investor's Advocate: How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation
352
E.
Periodic Disclosure Under the Securities Exchange Act
353
Note in Periodic Reporting by Registered Corporations
354
F.
Disclosure Under Stock Exchange Rules
355
2.
The Proxy Rules: An Introduction
355
Note[—]An Overview of the Proxy Rules
356
3.
The Proxy Rules: Shareholder Access
362
A.
The Dissident's Access Provision: Rule 14a-7
362
B.
Shareholder Proposals Under Rule 14a-8
362
Note on No-Action Letters Interpreting Rule 14a-8
363
Standard Pacific Corp
363
Randall S. Thomas & James F. Cotter, Shareholder Proposals in the New Millennium: Shareholder Support, Board Response, and Market Reaction
370
C.
Shareholder Access to the Nominating Process
372
4.
Materially Misleading Proxies and Rule 14a-9
373
Note on J.I. Case Co. v. Borak
373
Wyandotte v. U.S.
374
Cort v. Ash
374
Mills v. Electric Auto-Lite Co
375
Note on Further Proceedings in Mills v. Electric Auto-Lite
380
Note on Materiality: TSC Industries Inc. v. Northway, Inc
380
Virginia Bankshares, Inc. v. Sandberg
382
Wilson v. Great American Industries, Inc
387
Note on Causation, Reliance, and Standing in Private Actions Under the Proxy Rules
388
Note on the Standard of Fault in Private Actions Under the Proxy Rules
389
Note on State Law
390
ch. 7
Personal Liability in a Corporate Context
391
1.
Preincorporation Transactions by Promoters
391
2.
Consequences of Defective Incorporation
393
Note on Defective Incorporation
393
Fred McChesney, Doctrinal Analysis and Statistical Modeling in Law: The Case of Defective Incorporation
397
3.
Veil Piercing
397
Introductory Note on Limited Liability
398
Fletcher v. Atex, Inc
398
Walkovszky v. Carlton
403
Note on Further Proceedings in Walkovszky v. Carlton
408
Berle, The Theory of Enterprise Entity
408
Note on Limited Liability Against Tort Claimants
409
Minton v. Cavaney
414
Arnold v. Browne
416
Slottow Fidelity Federal Bank v. American Casualty Co.
416
Truckweld Equipment Co., Inc. v. Olson
417
Radaszewski v. Telecom Corp.
417
Sea-Land Services, Inc. v. Pepper Source
418
Kinney Shoe Corp. v. Polan
421
Eisenberg, Corporate Groups, in the Law Relating to Corporate Groups
423
Berkey v. Third Ave. Ry. Co.
424
Carte Blanche (Singapore) Pte., Ltd. v. Diners Club International, Inc.
424
Note on Variations among States in Applying the Piercing-the-Veil doctrine
424
Note on an Empirical Analysis of Piercing Cases
425
4.
The Corporate Entity and the Interpretation of Statutes and Contracts
426
Brotherhood of Locomotive Eng'rs v. Springfield Terminal Ry. Co.
426
Note on Interpretation
430
Note on The Entity and the Environment
431
ch. 8
The Special Problems of Shareholders in Close Corporations
437
1.
Introduction
437
Note on Legislative Strategies Toward the Close Corporation
437
Note on Non-Electing Corporations
439
2.
Voting Arrangements at the Shareholder Level
441
A.
Shareholder Voting Agreements
441
Ringling Bros.[—]Barnum & Bailey Combined Shows v. Ringling
442
Note on Shareholder Voting Agreements and Irrevocable Proxies
448
Haft v. Haft
451
B.
Voting Trusts
452
Note on Voting Trusts
453
C.
Classified Stock
454
Note on Classified Stock
455
3.
Agreements Controlling Decisions That Are within the Board's Discretion
456
McQuade v. Stoneham
456
Note on Clark v. Dodge
459
Galler v. Galler
460
Note on Further Proceedings in Galler v. Galler
464
Wasserman v. Rosengarden
465
Adler v. Svingos
466
Myocare Nursing Home, Inc. v. Fifth Third Bank
466
4.
Supermajority Voting and Quorum Requirements at the Shareholder and Board Levels
468
Sutton v. Sutton
468
5.
Fiduciary Obligations of Shareholders in Close Corporations
471
Donahue v. Rodd Electrotype Co.
471
Note on Nixon v. Blackwell
478
Rosenthal v. Rosenthal
480
Wilkes v. Springside Nursing Home, Inc.
481
Zimmerman v. Bogoff
486
Smith v. Atlantic Properties, Inc.
486
Sletteland v. Roberts
490
Merola v. Exergen Corp.
491
Blank v. Chelmsford Ob/Gyn, P.C.
493
6.
Restrictions on the Transferability of Shares, and Mandatory-Sale Provisions
493
Introductory Note
493
F.B.I. Farms, Inc. v. Moore
494
Evangelista v. Holland
501
Note on Restrictions on Transferability and Mandatory Sales of Stock
502
Gallagher v. Lambert
505
Jensen v. Christensen & Lee Insurance
508
Jordan v. Duff & Phelps, Inc.
509
Nemec v. Shrader
512
7.
Dissolution and Associated Remedies
515
A.
Dissolution for Deadlock
515
Wollman v. Littman
516
Note on Dissolution for Deadlock
516
B.
Dissolution for Oppression and Mandatory Buy-Out
517
Note on Hetherington and Dooley
517
Matter of Kemp & Beatley, Inc.
519
Meiselman v. Meiselman
524
Note on Evolving Expectations
525
Thompson, The Shareholder's Cause of Action for Oppression
526
Haynsworth, The Effectiveness of Involuntary Dissolution Suits as a Remedy for Close Corporation Dissension
526
Note on the Duties of Care and Loyalty in Close Corporations
527
McCallum v. Rosen's Diversified, Inc.
528
Muellenberg v. Bikon Corp
530
Kelley v. Axelsson
531
Haynsworth, The Effectiveness of Involuntary Dissolution Suits as a Remedy for Close Corporation Dissension
531
Note on Dissolution
532
Note on Valuation of the Minority's Shares
533
Charland v. Country View Golf Club, Inc
535
Note on Minority and Marketability Discounts
538
Note on Matter of Pace Photographers
539
Friedman v. Beway Realty Corp.
540
8.
Custodians and Provisional Directors
542
Giuricich v. Emtrol Corp.
542
Thompson, The Shareholder's Cause of Action for Oppression
543
Note on Custodians and Provisional Directors
543
9.
Arbitration
544
Ringling v. Ringling Bros. Barnum & Bailey Circus
544
Application of Vogel
544
Lane v. Abel-Bey
546
Shell, Arbitration and Corporate Governance
546
ch. 9
Limited Liability Companies
547
Meyer v. Oklahoma Alcoholic Beverage Laws Enforcement Commission
547
1.
Introduction: Formation and Management of LLCs
548
Racing Investment Fund 2000, LLC v. Clay Ward Agency, Inc.
549
Estate of Collins v. Geist
552
Note on Members' Rights
557
2.
LLCs and the Distinct Entity Concept
559
A.
The Entity Feature and Its Disregard
559
3519-3513 Realty, LLC v. Law
559
Kaycee Land and Livestock v. Flahive
560
B.
Suits on Behalf of the LLC
564
Tzolis v. Wolff
565
Elf Atochem North America, Inc. v. Jaffari
568
3.
Fiduciary Duties
569
Salm v. Feldstein
570
VGS, Inc. v. Castiel
572
Solar Cells, Inc. v. True North Partners, LLC
574
Gatz Props., LLC v. Auriga Capital Corp
580
4.
Disassociation and Dissolution
585
Lieberman v. Wyoming.com LLC
585
In the Matter of 1545 Ocean Avenue, LLC.
591
Haley v. Talcott
597
ch. 10
The Duty of Care and the Duty to Act in Good Faith
603
1.
The Duty of Care
603
A.
The Basic Standard of Care
603
Francis v. United Jersey Bank
603
Aronson v. Lewis
614
Quillen, Trans Union, Business Judgment, and Neutral Principles
614
In re Emerging Communications, Inc. Shareholders Litigation
615
Note on Causation
615
B.
The Business Judgment Rule
618
Kamin v. American Express Co.
618
Note on the Divergence of Standards of Conduct and Standards of Review in Corporate Law, and on the Business Judgment Rule
622
Smith v. Van Gorkom
627
Note on Substance and Process in the Duty of Care
643
C.
The Duty to Monitor, Compliance Programs, and Internal Controls
643
In re Caremark International Inc. Derivative Litigation
643
In re Massey Energy Company Derivative and Class Action Litigation
655
Note on Corporate Criminal Liability, the Sentencing Guidelines, and Compliance Programs
659
ABA Section of Business Law, Committee on Corporate Laws, Corporate Director's Guidebook
661
Eisenberg, The Board of Directors and Internal Control
662
Note on Civil Liability of Directors and Officers to Third Persons
663
D.
Liability Shields
664
Emerald Partners v. Berlin
664
Malpiede v. Townson
665
E.
Directors' and Officers'[—]Liability Insurance
669
Note on Directors' and Officers' Liability Insurance
669
2.
The Duty to Act in Good Faith
672
In re the Walt Disney Company Derivative Litigation
672
Stone v. Ritter
676
3.
The Duty to Act Lawfully
679
Miller v. American Telephone & Telegraph Co.
679
Note on Criminal Liabilities of Directors and Officers
682
ch. 11
The Duty of Loyalty
687
1.
Self-Interested Transactions
687
Gantler v. Stephens
687
Shocking Technologies, Inc. v. Kosowsky
694
2.
Self-Dealing Transactions
695
Marsh, Are Directors Trustees?[—]Conflicts of Interest and Corporate Morality
695
Lewis v. S.L. & E., Inc.
698
Note on Remedies for Violation of the Duty of Loyalty
705
Talbot v. James
707
Note on the Duty of Loyalty
712
Note on Associates of Directors and Senior Executives
713
3.
Statutory Approaches
714
Cookies Food Products v. Lakes Warehouse
715
Note on the Effect of Approval of Self-Interested Transactions by Disinterested Directors
722
Sutherland v. Sutherland
724
Note on the Limits of Shareholder Ratification
728
4.
Compensation
730
Aggarwal, Executive Compensation and Corporate Controversy
730
Note on Tax Treatment of Executive Compensation
733
Freedman v. Adams
733
In re The Walt Disney Company Derivative Litigation
735
In re Tyson Foods, Inc. (Tyson I)
735
Tyson Foods, Inc. (Tyson II)
740
Note on Accounting Treatment of Options
743
Kevin J. Murphy, The Politics of Pay: A Legislative History of Executive Compensation
744
Ryan v. Gifford
745
Note on Challenges to Compensation
750
Wilderman v. Wilderman
751
Note on CEO Compensation
752
Harwell Wells, U.S. Executive Compensation in Historical Perspective
754
Note on Addressing Excessive Executive Compensation Through Governance
755
Note on the Compensation of Nonexecutive Directors
757
5.
Use of Corporate Assets: The Corporate Opportunity Doctrine
759
Meinhard v. Salmon
759
Hawaiian International Finances, Inc. v. Pablo
759
Forkin v. Cole
761
Northeast Harbor Golf Club, Inc. v. Harris
762
Note on Further Proceedings in Northeast Harbor Golf Club, Inc. v. Harris
770
Broz v. Cellular Information Systems, Inc
772
Note on the Corporate Opportunity Doctrine
775
In re eBay, Inc. Shareholders Litigation
779
6.
Duties of Controlling Shareholders
781
A.
Regulating the Exercise of Control
781
Sinclair Oil Corporation v. Levien
782
David J. Greene and Co. v. Dunhill International, Inc.
787
Kahn v. Lynch Communication Systems, Inc.
788
Jones v. H. F. Ahmanson Company
799
Note on Family Controlled Public Companies
806
B.
Class Wars
807
In re Trados Incorporated Shareholder Litigation
807
Zahn v. Transamerica Corporation
827
Note on Further Proceedings in Zahn v. Transamerica Corp.
833
Nemec v. Shrader
834
Note on the Duty of Disclosure by Controlling Shareholders Under Delaware Law
834
C.
Sale of Control
836
Zetlin v. Hanson Holdings, Inc
836
Andrews, The Stockholder's Right to Equal Opportunity in the Sale of Shares
837
Javaras, Equal Opportunity in the Sale of Controlling Shares: A Reply to Professor Andrews
839
Gerdes v. Reynolds
840
Note on Further Proceedings in Gerdes v. Reynolds
844
Perlman v. Feldmann
845
Note on Further Proceedings in Perlman v. Feldmann
849
Harris v. Carter
849
Note on the Theory of Corporate Action
849
D.
The Sale of a Corporate Office
850
Essex Universal Corp. v. Yates
850
Note on Essex Universal Corp. v. Yates
858
Note on Tag-Along and Drag-Along Provisions
858
ch. 12
The Antifraud Provision: Section 10(b) and Rule 10b-5
859
1.
An Introduction to Section 10(b) and Rule 10b-5
859
The Wharf (Holdings) Limited v. United International Holdings, Inc.
859
Note on Private Actions Under Rule 10b-5
862
2.
The Private Securities Litigation Reform Act and Securities Litigation Uniform Standards Act
863
3.
The Elements of Standing, "In Connection with" and Scienter
866
Note on Standing and "In Connection with"
866
Note on the Scienter Requirement and Its Pleading
870
Note on Scienter and the Forward Looking Statement
874
4.
Duty to Speak
876
Gallagher v. Abbott Laboratories
878
5.
Primary Participants After Central Bank
882
Janus Capital Group, Inc. v. First Derivative Traders
883
6.
Causal Relationship
890
Affiliated Ute Citizens v. United States
893
Basic Inc. v. Levinson
896
Note: More on the Probability-Magnitude Approach to Materiality
904
Cammer v. Bloom
905
Note on Class Certification in Fraud on the Market Cases
906
Metzler Investment GMBH v. Corinthian Colleges, Inc.
907
7.
The Junction of Breaches of Fiduciary Duty and Rule 10b-5
911
Santa Fe Industries, Inc. v. Green
911
Note on Goldberg v. Meridor
917
8.
Remedies in Private Actions Under Rule 10b-5
920
Note on Proportionate Liability
922
ch. 13
Insider Trading
925
1.
The Common Law Background
925
Note on the Duties of Directors and Officers Under the Common Law When Trading in Their Corporation's Stock
925
2.
The Federal Disclose or Abstain Requirement
928
In the Matter of Cady, Roberts & Co.
928
Securities and Exchange Commission v. Texas Gulf Sulphur Co.
929
SEC v. Texas Gulf Sulphur Co.
943
How Pervasive Is Insider Trading?
943
Why Prohibit?
945
Note on the "Use" Test Under Rule 10b-5
948
Chiarella v. United States
949
After the Fall
956
United States v. O'Hagan
957
Note on Who's a Misappropriator?
967
Dirks v. Securities and Exchange Commission
970
After the Fall
979
SEC, Selective Disclosure and Insider Trading
981
Note on Insider Trading Enforcement
983
3.
Liability for Short-Swing Trading Under [§] 16(b) of the Securities Exchange Act
984
Report of the Task Force on Regulation of Insider Trading, Part II: Reform of Section 16
986
Gratz v. Claughton
988
Note on the Computation of Profits Under [§] 16(b)
991
Note on the Interpretation of [§] 16(b)
992
Note on "Unorthodox" Transactions Under [§] 16(b)
993
Note on Attribution of Ownership Under Sections 16(a) and (b)
996
Note on Statutory Insider Status at Only One End of a Swing
998
Note on Who Is an "Officer" Under [§] 16(b)
999
Note on Deputization
1001
4.
Corporate Recoveries for Inside Trading Under State Law
1002
Diamond v. Oreamuno
1002
ch. 14
Shareholder Suits
1011
1.
Introduction
1011
Background Note
1011
Macey & Miller, The Plaintiffs' Attorneys' Role in Class Actions and Derivative Litigation: Economic Analysis and Recommendations for Reform
1013
Note on the Empirical Studies of Shareholder Litigation
1015
Note on Who Can Bring a Derivative Action
1021
Note on Personal Defenses
1022
Note on the Corporation as an Indispensable Party
1023
2.
The Nature of the Derivative Action
1024
Tooley v. Donaldson, Lufkin, & Jenrette, Inc.
1024
Note on the Distinction Between Derivative and Direct Actions
1029
Barth v. Barth
1031
3.
Individual Recovery in Derivative Actions
1034
Glenn v. Hoteltron Systems, Inc.
1034
Perlman v. Feldmann
1035
Note on Individual Recovery in Derivative Actions
1035
4.
The Contemporaneous-Ownership Rule
1038
Bangor Punta Operations, Inc. v. Bangor & Aroostook R.R.
1039
Rifkin v. Steele Platt
1044
Note on the Contemporaneous-Ownership Rule
1045
5.
Right to Trial by Jury in Derivative Actions
1048
6.
The Demand Requirement
1050
Introductory Note
1050
Marx v. Akers
1051
Aronson v. Lewis
1059
Auerbach v. Bennett
1062
Zapata Corp. v. Maldonado
1067
Boland v. Boland Trane Associates, Inc.
1073
Note on Cuker v. Mikalauskas
1077
In re PSE & G Shareholder Litigation
1079
Note on Independence
1080
7.
Demand on the Shareholders
1084
8.
Indemnification and Insurance
1085
A.
Indemnification
1085
Waltuch v. Conticommodity Services, Inc.
1087
Note on the Scope of Indemnification Provisions
1099
Note on Advances
1102
B.
Insurance
1102
9.
The Role of Corporate Counsel
1102
Bell Atlantic Corp. v. Bolger
1102
Note on Problems Concerning the Law Governing Lawyers in Derivative Actions
1105
10.
Settlement of Derivative Actions
1108
Clarke v. Greenberg
1109
Background of the Purpose and Consequences of Court Approval of Settlements
1110
In re Caremark, International, Inc. Derivative Litigation
1112
Desimone v. Industrial Bio-Test Laboratories, Inc
1112
Background Note on Judicial Approval of Settlements
1113
Macey & Miller, The Plaintiffs' Attorneys' Role in Class Actions and Derivative Litigation: Economic Analysis and Recommendations for Reform
1114
Note on Settlements Without the Plaintiffs Consent
1115
11.
Plaintiffs Counsel Fees
1116
Tandycrafts, Inc. v. Initio Partners
1116
Sugarland Ind., Inc. v. Thomas
1118
G & N Aircraft, Inc. v. Boehm
1119
Macey & Miller, The Plaintiffs' Attorneys' Role in Class Actions and Derivative Litigation: Economic Analysis and Recommendations for Reform
1119
Background Note on the Award of Counsel Fees to Successful Derivative-Action Plaintiffs
1121
Goodrich v. E.F. Hutton Group
1123
Further Note on Plaintiffs Counsel Fees
1124
12.
Security for Expenses
1125
West Hills Farms, Inc. v. RCO AG Credit, Inc.
1126
Background Note on Security-for-Expenses Statutes
1127
13.
Private Ordering and Shareholder Suits
1129
Boilermakers Local 154 Ret. Fd. v. Chevron Corp.
1130
ch. 15
Corporate Combinations, Tender Offers and Defending Control
1139
1.
Corporate Combinations
1139
A.
Sale of Substantially All Assets
1139
Hollinger, Inc. v. Hollinger International, Inc.
1139
Note on Sale of Substantially All Assets
1146
B.
The Appraisal Remedy
1146
Note on the Appraisal Remedy
1147
Piemonte v. New Boston Garden Corp.
1149
Note on Appraised Value: The Battling Experts
1155
Charland v. Country View Golf Club, Inc
1157
Note on Discounts and Premiums in Appraisal Proceedings
1158
Note on Exclusivity of the Appraisal Remedy
1161
C.
Statutory Mergers
1165
1.
Classical Mergers
1165
2.
Small-Scale Mergers
1166
E. Welch, A. Turezyn II & R. Saunders, Folk on the Delaware General Corporation Law [§] 251.2.2.1
1166
3.
Short-Form Mergers
1167
D.
Tax Aspects of Corporate Combinations
1168
E.
The Stock Modes and the De Facto Merger Theory
1169
Hariton v. Arco Electronics, Inc.
1170
Note on Another Approach to Legislative Intent: Rath v. Rath Packing Co
1172
Note on Heilbrunn v. Sun Chemical Corporation
1173
Farris v. Glen Alden Corp.
1174
Note on Farris
1180
Note on the Survivor's Liability to the Transferor's Creditors
1181
F.
Triangular Mergers and Share Exchanges
1183
Terry v. Penn Central Corp.
1183
Note on Triangular Mergers and Share Exchanges
1186
Note on Entity Conversion
1188
G.
Freezeouts
1189
Note on Freezeout Techniques
1189
Weinberger v. UOP, Inc
1190
Kahn v. Lynch Communication Systems
1204
Kahn v. M & W Worldwide Corp.
1204
Note on Substitutes, Opportunism and the Purpose Test
1207
Glassman v. Unocal Exploration Corp.
1209
Solomon v. Pathe
1211
In re Pure Resources, Inc. Shareholder Litigation
1212
Note on Delaware's Streamlined Back-End Merger Procedure
1216
Note on "Going Dark"
1217
2.
Hostile Takeovers and Defending Control
1219
The Lexicon of the Battle for Control
1220
A.
The Williams Act
1221
B.
Assessing the Target's Response
1227
Unocal Corp. v. Mesa Petroleum Co.
1227
Note on Unitrin, Inc. v. American General Corp.
1235
Note on Unocal
1238
C.
Poison Pills
1239
Air Products and Chemicals, Inc. v. Airgas, Inc.
1244
D.
The "Revlon Moment"
1250
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.
1250
Paramount Communications, Inc. v. Time Inc.
1260
Note on Revlon in Operation
1273
Note on Defensive Maneuvers Outside of Delaware
1279
3.
Protecting the Deal
1281
Omnicare, Inc. v. NCS Healthcare, Inc.
1281
Note on Termination Fees
1291
4.
State Takeover Statutes
1292
5.
Restructurings and the Bondholders
1297
Sharon Steel Corporation v. The Chase Manhattan Bank
1298
Metropolitan Life Insurance Company v. RJR Nabisco, Inc
1305
Katz v. Oak Industries, Inc.
1312
ch. 16
Distributions to Shareholders
1317
1.
Dividend Policy
1317
A.
The Elements of Dividend Policy
1318
Richard A. Brealey & Stewart C. Myers & Franklin Allen, Principles of Corporate Finance
1318
Bray, Graham, Harvey & Michaely Payout Policy in the 21st Century
1321
B.
Judicial Review of Dividend Policy
1322
1.
Publicly Held Corporations with a Controlling Shareholder
1322
Baron v. Allied Artists Pictures Corporation
1322
2.
Close Corporations
1327
Dodge v. Ford Motor Co
1327
Smith v. Atlantic Properties, Inc.
1327
Note on Compelling Dividends in Close Corporations
1327
2.
Limitations on Dividends Under Creditors' Rights Law
1329
Background Note on the Law of Creditors' Rights
1330
3.
Limitations on Dividends Under the Corporate Statutes
1332
A.
Introduction
1332
B.
Traditional Statutes[—]Capital-Impairment Statutes
1333
1.
The Capital-Impairment Test and Its Meaning
1333
Note on Revaluation of Assets and Klang v. Smith's food & Drug Centers, Inc.
1334
Note on Balance Sheet Accounting for Corporate Equity
1336
2.
Exceptions to the Basic Capital-Impairment Test
1337
a.
Nimble Dividends
1337
b.
Wasting-Asset Corporations
1338
Note on Wasting-Asset Corporations
1338
c.
Dividends out of Capital Surplus
1339
Note on Dividends out of Capital Surplus
1339
C.
Traditional Statutes[—]Earned-Surplus Statutes
1339
Note on the Earned-Surplus Test
1339
4.
The Modern Dividend Statutes for Corporations and LLCs
1340
Kummert, State Statutory Restrictions on Financial Distributions by Corporations to Shareholders (Pt. II)
1341
5.
Contractual Restrictions on the Payment of Dividends
1342
Bayless Manning & James J. Hanks, Jr., Legal Capital
1342
6.
Liability of Directors and Managers for Improper Distributions
1344
Note on Liability of Directors and Managers for Improper Dividends
1344
7.
Liability of Members and Shareholders for Improper Distributions
1345
Weinstein v. Colborne Foodbotics LLC
1346
Note on Member and Shareholder Liability for Improper Distributions
1349
8.
Repurchase by a Corporation of Its Own Stock
1352
A.
Financial Limitations on Stock Repurchases
1352
Note on Liability for Repurchases in Violation of Statutory Financial Provisions
1354
B.
Non-Financial Rules Concerning Stock Repurchases
1355
Note on Status of Repurchased Shares
1355
Note on Non-Financial Limitations on Stock Repurchases
1356
9.
Liability for Watered Stock and Related Issues
1358
ch. 17
The Public Distribution of Securities
1363
1.
Introduction
1363
A.
An Overview of the Securities Markets
1363
James D. Cox, Robert W. Hillman & Donald C. Langevoort, Securities Regulations: Cases and Materials
1363
B.
An Overview of the Securities Act
1365
Securities and Exchange Commission, the Investor's Advocate: How the SEC Protects Investors and Maintains Market Integrity
1365
SEC, Q & A: Small Business and the SEC
1366
C.
An Overview of the Underwriting Process
1367
L. Loss & J. Seligman, Fundamentals of Securities Regulation
1367
Coffee & Sale, Securities Regulation[—]Cases and Materials
1370
D.
On-Ramp Dispensations for Emerging Growth Companies
1371
2.
What Constitutes a "Security"
1372
McGinty, What Is a Security?
1372
Note on the Meaning of "Investment Contract"
1373
Note on What Is "Stock": Landreth Timber Co. v. Landreth
1377
When Is a "Note" a Security?
1379
3.
What Constitutes a "Sale" and an "Offer to Sell"
1383
Note on the Meaning of "Sale" and "Offer to Sell"
1383
4.
The Requirement of Registration
1384
A.
The Broad Sweep of Section 5
1384
B.
The Intrastate Exemption
1385
Securities Act Release No. 4434 (1961)
1385
Securities Act Release No. 5450 (1974)
1387
SEC, Q & A: Small Business and the SEC
1388
C.
Private Placements
1389
S.E.C. v. Ralston Purina Co.
1389
Note on Doran v. Petroleum Management Corp
1392
SEC, Q & A: Small Business and the SEC
1395
D.
Limited Offerings
1395
T. Hazen, Securities Regulation in a Nutshell
1396
SEC, Q & A: Small Business and the SEC
1396
T. Hazen, Securities Regulation in a Nutshell
1399
Note on JOBS Act and General Solicitations
1399
Note on Crowdfunding
1400
E.
Regulation A
1402
SEC, Proposed Rule Amendment for Small and Additional Issuer Exemptions Under Section 3(b) of the Securities Act
1402
Note on the Significance of Exemptions
1404
Note on the Integration of Securities Issues
1405
F.
Transactions Not Involving an Issuer, Underwriter, or dealer
1406
1.
Who Is a Statutory Underwriter
1407
Note on the Meaning of Term "Offers or Sells for an Issuer in Connection with... the Distribution of Any Security"
1407
Note on the Meaning of the Term "Any Person Who Has Purchased from an Issuer with a View to... Distribution"
1408
2.
Sales by Controlling Persons
1409
Note on Offers or Sales by Controlling Persons
1409
3.
Rules 144 and 144A
1412
Revisions to Rule 144
1412
Securities Act Release No. 6862 (1990)
1415
Note on the "4 1-1/2" Exemption
1417
Note on Exempted Securities
1417
5.
Mechanics of Registration
1417
Note on the Registration Process
1417
Note on the Integration of Disclosure Under the 1933 and 1934 Acts
1418
Note on Shelf Registration
1420
6.
Duties and Prohibitions When a Security Is in Registration
1422
A.
Overview
1422
Securities Act Release No. 4697 (1964) [Offers and Sales of Securities by Underwriters and Dealers]
1422
B.
The Pre-Filing Period
1424
Note on in the Matter of Carl M. Loeb, Rhoades & Co. and Chris-Craft Industries v. Bangor Punta Corp.
1426
Note on SEC's Guidance for Communications During Quiet Period
1428
C.
The Waiting Period
1430
D.
The Post-Effective Period
1432
7.
Liabilities Under the Securities Act
1434
Note on Liabilities Under the Securities Act
1434
Escott v. Barchris Constr. Corp.
1436
8.
Blue Sky Laws
1454
Note on Blue Sky Laws
1454
Index
1457