Law Commons^™

How Corporate Political Spending Strains The Limits Of The Business Judgment Rule, David Rosenberg

David Rosenberg

A number of agency issues arise when a corporation chooses to exercise its freedom of speech by making donations to a super PAC or other political organization. This article draws a distinction between contributions designed to influence legislation and regulation of the corporation and political donations that corporations justify as goodwill or community outreach. Analyzing the issue with an emphasis on the duty of loyalty, the article argues that much corporate political spending cannot really be understood as a business decision that should enjoy the protection of the business judgment rule. It also reflects on the Supreme Court’s recent decision …

Damning Dictum: The Default Duty Debate In Delaware, Mohsen Manesh

Mohsen Manesh

Bizarrely, today even the most sophisticated business lawyer cannot answer a seemingly simple question: whether, in the absence of an express agreement to the contrary, the manager of a Delaware limited liability company (LLC) owes traditional fiduciary duties to its members as a default matter? This was not always the case. Until recently, this question was settled—settled at least in the Delaware Court of Chancery. But in November 2012, the Delaware Supreme Court cast doubt on a long line of chancery court precedent in Gatz Properties v. Auriga Capital. Given the broad freedom of contract available under LLC law, it …

M&A Fiduciary Duties: Delaware’S Murky Jurisprudence, Daniel J. Morrissey

Dan Morrissey

The article deals with the fiduciary duties of corporate officials in mergers and acquisitions, particularly as they have been defined by the Delaware Courts. It focuses on judicial decisions over the last several decades and includes a discussion of some of the most recent significant ones.

The article also describes how those duties may vary depending on the type of corporate event that is occurring and contains commentary on the nature of those obligations. Where corrupt activity is present or there is no showing that these transactions are in the public interest, they should not be permitted to go forward. …

Dual Real Estate Agents And The Double Duty Of Loyalty, Mary Szto

Mary Szto

Our present housing crisis is related in part to practices of real estate agents. This article addresses the top three issues that cause the most disputes for agents. They are dual agency, disclosure, and breach of fiduciary duty. Despite legislative efforts in the past two decades to clarify and reduce the duties of dual agents, agents and consumers are still confused about agents who represent both sellers and buyers. They owe double, not half the loyalty owed to one principal.

The stakes are high because home ownership is critical to our economic recovery and the chief source of wealth for …

The Economic Theory Of Derivative Actions, Diego G. Pardow

Diego G. Pardow

This paper offers a model to formalize the economic theory of derivative actions developed during the last 30 years. From this perspective, the derivative action presents two interrelated problems. The first is how to solve the collective action problem that prevents that minority shareholders file a suit. The second is how to control the risk of collusive settlements between the defendant manager and the plaintiff’s attorney. This model identifies the fundamental tradeoffs that are implicit in these problems, as well as an optimum that could be used as normative benchmark. In brief, it argues that if the goal of derivative …

Beyond The Board Of Directors, Kelli A. Alces

Kelli A. Alces

The law of corporate governance places the board of directors at the top of the corporate decisionmaking structure. So, accountability for corporate decisions rests primarily on the shoulders of part-time employees who lack the time and thorough knowledge of the firm necessary to perform the board’s duties effectively. Corporate governance scholarship is similarly preoccupied with the board of directors. Scholars have debated whether to enhance or diminish the board’s authority within the firm, but all accept that a board of directors should preside over corporate decisionmaking. This Article argues that scholars on both sides of the debate have missed the …

Beyond The Board Of Directors, Kelli A. Alces

Kelli A. Alces

The law of corporate governance places the board of directors at the top of the corporate decisionmaking structure. So, accountability for corporate decisions rests primarily on the shoulders of part-time employees who lack the time and thorough knowledge of the firm necessary to perform the board’s duties effectively. Corporate governance scholarship is similarly preoccupied with the board of directors. Scholars have debated whether to enhance or diminish the board’s authority within the firm, but all accept that a board of directors should preside over corporate decisionmaking. This Article argues that scholars on both sides of the debate have missed the …

Beyond The Board Of Directors, Kelli A. Alces

Kelli A. Alces

The law of corporate governance places the board of directors at the top of the corporate decisionmaking structure. So, accountability for corporate decisions rests primarily on the shoulders of part-time employees who lack the time and thorough knowledge of the firm necessary to perform the board’s duties effectively. Corporate governance scholarship is similarly preoccupied with the board of directors. Scholars have debated whether to enhance or diminish the board’s authority within the firm, but all accept that a board of directors should preside over corporate decisionmaking. This Article argues that scholars on both sides of the debate have missed the …

Beyond The Board Of Directors, Kelli A. Alces

Kelli A. Alces

The law of corporate governance places the board of directors at the top of the corporate decisionmaking structure. So, accountability for corporate decisions rests primarily on the shoulders of part-time employees who lack the time and thorough knowledge of the firm necessary to perform the board’s duties effectively. Corporate governance scholarship is similarly preoccupied with the board of directors. Scholars have debated whether to enhance or diminish the board’s authority within the firm, but all accept that a board of directors should preside over corporate decisionmaking. This Article argues that scholars on both sides of the debate have missed the …

An Antidote For Poison Puts: A Eulogy For A Management Entrenchment Device, David Hudson

David Hudson

Poison puts are a type of event risk covenant commonly found in financing agreements. Lenders, both as bondholders and banks, utilize this provision as one layer of protection. However, poison puts can also be utilized to entrench a corporation’s management. The provision grew in popularity with the growth of the leveraged buyout boom of the 1980’s, but was frequently ignored during the subsequent economic growth period and merger activity that accompanied it. With the recent collapse in credit markets, companies and shareholders have challenged the provision’s interpretation and enforceability. These challenges have come in tandem with lenders taking more aggressive …

The Use Of Special Committees In Mergers And Acquisitions, Benjamin James, Jeffrey Chapman

Benjamin James

It is critical for boards of directors to address properly conflicts of interest in business combinations. Many boards have appointed special committees of independent directors to ensure that stockholders’ interests are protected in mergers and acquisitions and, in certain circumstances, to shift the burden from directors, who must establish the "entire fairness" of the transaction, to the stockholder-plaintiffs, who must establish unfairness. This paper addresses the fiduciary framework governing mergers and acquisitions and the requirements to appoint and conduct the activities of a special committee under Delaware law.

The Enduring Legacy Of Smith V. Van Gorkom, Bernard S. Sharfman

Bernard S Sharfman

It is hard to envision an introductory law school course in corporate law that does not devote at least one or two classes to the study of Smith v. Van Gorkom (Van Gorkom), possibly the most famous corporate law case decided by the Delaware Supreme Court. It has become such a foundation case for the beginning study of corporate law that one prominent corporate law commentator has likened the failure to teach Van Gorkom to the omission of Brown v. Board of Education in a first year constitutional law course.

The challenge for teachers of Van Gorkom is to explain …

Corporate Governance, Director Liability, And Good Faith, Elizabeth Nowicki

Elizabeth Nowicki

Corporate directors are obligated to act “in good faith,” and directors face personal monetary liability to their shareholders for acts “not in good faith.” Yet no modern court has imposed liability accordingly. Every time the issue of a director’s good faith comes up in court, the court forces the complaining shareholder to prove that her directors acted affirmatively in bad faith as opposed to merely in the absence of good faith. The judiciary completely misses the point that acts lacking good faith are not always the same as acts affirmatively taken in bad faith. A director can act in the …