Cases and Materials on Corporations

Choper, Coffee, Gilson
6th Edition
ISBN: 0735539839

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Page	Case Name	Citation	Court	Audio
1	Menard, Inc. v. Dage-MTI, Inc.	726 N.E.2d 1206	Supreme Court of Indiana, 2000
2	Lindland v. United Business Investments, Inc.	693 P.2d 20	Supreme Court of Oregon 1984
3	Tarnowski v. Resop	51 N.W.2d 801	Supreme Court of Minnesota, 1952	Download
4	Humble Oil & Refining Co. v. Martin	222 S.W.2d 995	Supreme Court of Texas, 1949	Download
5	Hoover v. Sun Oil Company	212 A.2d 214	Superior Court of Delaware, New Castle, 1965	Download
6	Fairway Development v. Title Ins. Co. of Minnesota	621 F. Supp. 120	United States District Court for the Northern District of Ohio, Eastern Division, 1985
7	Vohland v. Sweet	433 N.E.2d 860	Court of Appeals of Indiana, First District, 1982
8	Lupien v. Malsbenden	477 A.2d 746	Supreme Judicial Court of Maine,1984	Download
9	Meinhard v. Salmon	249 N.Y. 458, 164 N.E. 545	Court of Appeals of New York , 1928
10	Thompson & Green Machinery Co. v. Music City Lumber Co.	683 S.W.2d 340	Court of Appeals of Tennessee, Middle Section, at Nashville, 1984
11	Don Swann Sales Corp. v. Echols	160 Ga. App. 539, 287 S.E.2d 577	Court of Appeals of Georgia, 1981	Download
12	Sulphur Export Corp. v. Carribean Clipper Lines, Inc.	277 F. Supp. 632	United States District Court for the Eastern District of Louisiana, New Orleans Division, 1968	Download
13	Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp.	1991 WL 277613	Court of Chancery of Delaware, New Castle County, 1991	Download
14	Perpetual Real Estate Services, Inc. v. Michaelson Properties, Inc.	974 F.2d 545	United States Court of Appeals, Fourth Circuit, 1992
15	Kinney Shoe Corp. v. Polan	939 F.2d 209	United States Court of Appeals for the Fourth Circuit, 1991
16	Bartle v. Home Owners Cooperative	309 N.Y. 103, 127 N.E.2d 832	Court of Appeals of New York, 1955	Download
17	Walkovsky v. Carlton	18 N.Y.2d 414, 223 N.E.2d 6, 276 N.Y.S.2d 585	Court of Appeals of New York, 1966
18	Fletcher v. Atex, Inc.	8 F.3d 1451	United States Court of Appeals for the Second Circuit, 1955
19	Kamin v. American Express Company	383 N.Y.S.2d 807	Supreme Court of New York, Special Term, New York County, 1976
20	Pillsbury v. Honeywell, Inc.	191 N.W.2d 406	Supreme Court of Minnesota, 1971
21	Security First Corp. v. U.S. Die Casting and Development Co.	687 A.2d 563	Delaware, 1997
22	Hilton Hotels Corp. v. ITT Corp. (Hilton I)	962 F. Supp. 1309	United States District Court for the District of Nevada, 1997	Download
23	Hilton Hotels Corp. v. ITT Corp. (Hilton II)	978 F.Supp. 1342	United States District Court for the District of Nevada, 1997
24	Schnell v. Chris-Craft Industries, Inc.	285 A.2d 437	Supreme Court of Delaware , 1971	Download
25	Stroud v. Grace	606 A.2d 75	Supreme Court of Delaware, 1992
26	MM Companies, Inc. v. Liquid Audio, Inc.	813 A.2d 1118	Supreme Court of Delaware, 2003
27	Datapoint Corp. v. Plaza Securities Co.	496 A.2d 1031	Supreme Court of Delaware, 1985	Download
28	Lacos Land Co. v. Arden Group, Inc.	517 A.2d 271	Court of Chancery of Delaware, New Castle, 1986
29	Schreiber v. Carney	447 A.2d 17	Court of Chancery of Delaware, New Castle, 1982
30	Speiser v. Baker	525 A.2d 1001	Court of Chancery of Delaware, New Castle, 1987
31	Shlensky v. Wrigley	95 Ill. App. 2d 173, 237 N.E.2d 776	Appellate Court of Illinois, First District, Third Division, 1968	Download
32	Smith v. Van Gorkom	488 A.2d 858	Supreme Court of Delaware, 1985
33	Gagliardi v. Trifoods International, Inc.	683 A.2d 1049	Court of Chancery of Delaware, New Castle, 1996
34	In re Caremark International, Inc. Derivative Litigation	698 A.2d 959	Court of Chancery of Delaware, New Castle, 1996
35	Cookies Food Products, Inc. v. Lakes Warehouse Distributing, Inc.	430 N.W.2d 447	Supreme Court of Iowa, 1988
36	Irving Trust Co. v. Deutsch	73 F.2d 121	Circuit Court of Appeals, Second Circuit, 1934
37	Rapistan Corp. v. Michaels	203 Mich. App. 301, 511 N.W.2d 918	Court of Appeals of Michigan, 1994
38	Case v. New York Central R.R.	15 N.Y.2d 150, 204 N.E.2d 643, 256 N.Y.S.2d 607	Court of Appeals of New York, 1965
39	In re Wheelabrator Technologies, Inc. Shareholders Litigation	663 A.2d 1194	Court of Chancery of Delaware, New Castle, 1995
42	Marx v. Akers	88 N.Y.2d 189, 644 N.Y.S.2d 121, 666 N.E.2d 1034	Court of Appeals of New York, 1996
43	Levine v. Smith	591 A.2d 194	Supreme Court of Delaware, 1991
45	Weinberger v. UOP, Inc.	457 A.2d 701	Supreme Court of Delaware, 1983
46	Cheff v. Mathes	41 Del. Ch. 494, 199 A.2d 548	Supreme Court of Delaware, 1964
47	Unocal Corp. v. Mesa Petroleum Co.	493 A.2d 946	Supreme Court of Delaware, 1985
48	Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.	506 A.2d 173	Supreme Court of Delaware, 1986

Case Information	Fact Summary	Rule of Law
Menard, Inc. v. Dage-MTI, Inc. Supreme Court of Indiana, 2000 726 N.E.2d 1206 Pg. 1	President of company did a land deal without board approval, which he needed, and the guy to which he sold the land sued for specific performance and damages.	"The Restatement (Second) of Agency Section 161 provides that an agent's inherent authority 'subjects his principal to liability for acts done on his account which (1) usually accompany or are incidental to transactions which the agent is authorized to conduct if, although they are forbidden by the principal, (2)the other party reasonably believes that the agent is authorized to do them and (3) has no notice that he is not so authorized. . . .'" The trial court held, that the president did not have the express or apparent authority to bind the corporation.
Lindland v. United Business Investments, Inc. Supreme Court of Oregon 1984 693 P.2d 20 Pg. 2	Plaintiffs brought an action to recover against United Business Investments, Inc., a broker with whom they had engaged to sell their business. The broker represented that a potential buyer had $300,000 more funds than was listed in buyer's financial statements. The plaintiffs sold to the buyers and the buyers defaulted on their payments to plaintiffs. The plaintiffs received a jury verdict and the defendants appealed, taking exception to a jury instruction that put the burden of proving the duty of full and faithful performance on the defendant. The defendants claimed that the burden of proof only falls on the defendant when there is evidence of self-dealing.	In a claim for breach of fiduciary duty, defendant does NOT have the burden of proving "by a preponderance of the evidence that it has fully performed its duty of full, fair and frank disclosure," unless there is evidence of self-dealing.
Tarnowski v. Resop Supreme Court of Minnesota, 1952 51 N.W.2d 801 Pg. 3	Plaintiff engaged defendant to investigate a coin operated business opportunity for plaintiff. Defendant misrepresented the business to plaintiff. Plaintiff purchased the business and realized he had been duped. He sued the sellers for rescission and recovered in a post-trial settlement. He then sued the defendant for an allegedly secret commission the defendant received from the sellers during the course of the investigation. In addition, the plaintiff sought to recover damages incurred during the transaction.	Restatement, Agency, Section 407(1). "If an agent has received a benefit as a result of violating his duty of loyalty, the principal is entitled to recover for him what he has so received, its value, or its proceeds, and also the amount of damage thereby caused. . . ."
Humble Oil & Refining Co. v. Martin Supreme Court of Texas, 1949 222 S.W.2d 995 Pg. 4	Mrs. Love left her car at a service station, which was owned by Humble Oil Co. Prior to anyone touching the vehicle, the car rolled off the premises and struck the Martin family from behind while they were walking into the yard of their home. Humble Oil Co. argued that it was not liable, because the service station was operated by an independent contractor.	Although there may be an agreement that the nature of a relationship is that of an independent contractor, the court will look at other factors (such as whether the employer / vendee had control) to determine whether the relationship is that of an independent contractor or that of master-servant. In this case, the court found that the relationship was more in line with a master-servant relationship because Humble paid important operating expenses and had substantial control over the business.
Hoover v. Sun Oil Company Superior Court of Delaware, New Castle, 1965 212 A.2d 214 Pg. 5	While fueling at defendant's gas station, a fire started at plaintiff's car. Plaintiff sued defendant, but defendant contended that the gas station was operated by an independent contractor, James Barone, and thus that the negligence of Barone's employee should not result in liability for defendant. Plaintiff argued that Barone was operating the station as defendant's agent.	There is no agency relationship between a supplier and retail outlet where the retail outlet is solely responsible for profits and losses and the supplier exercises no dominion or control over the retailer. In this case, the Court found no relationship between the supplier, Sun Oil, and the retailer other than a landlord-tenant relationship and that both had an interest in selling Sun products. Sun asserted no operational control and did was not responsible for the profits and losses of the retail outlet.
Fairway Development v. Title Ins. Co. of Minnesota United States District Court for the Northern District of Ohio, Eastern Division, 1985 621 F. Supp. 120 Pg. 6	Title Insurance Company of Minnesota (defendant) sold title insurance to Fairway Development (plaintiff), a partnership, consisting of three partners: Thomas Bernabei, James Serra, and Howard Wenger. The partners contributed capital and shared in the profits of the company equally. Defendant contends that the partnership (Fairway Development I) dissolved when Bernabei and Serra sold and transferred their interest in the partnership and that a new partnership resulted, Fairway Development II. The plaintiff argued that the Court should focus on the intent of the parties and that Fairway Development II carried on the stated purpose of Fairway Development I.	"It is universally admitted that any change in membership dissolves a partnership and creates a new partnership." Thus, the Court held that a new partnership emerged and the partnership ceased when the membership of the partnership changed. NOTE: This is no longer good law in many jurisdictions. The Revised Uniform Partnership Act states that "A partnership is an entity." Under the entity theory, the partnership continues despite change in membership. This is a change from previous notions of partnership composition, which treated partnerships as "aggregate," meaning that the partnership was merely a collection of individuals with no separate existence. In this case, the court applied the aggregate view and held that a new partnership had been created when the membership of the previous changed.
Vohland v. Sweet Court of Appeals of Indiana, First District, 1982 433 N.E.2d 860 Pg. 7	In 1956, Norman Sweet (plaintiff-appellee) began working for Charles Vohland - the father of Paul Vohland (defendant-appellant) - as an hourly employee. In 1963, the elder Vohland retired and Paul Vohland started Vohland's nursery and changed Sweet's status, so that Sweet was to receive a 20 percent share of the net profit of the enterprise. The evidence was somewhat contradictory regarding the operational roles and interests of the parties in the venture. Sweet received a judgment in the District Court and Vohland appeals.	"[I]f, from a consideration of all the facts and circumstances, it appears that the parties intended, between themselves, that there should be a community of interest of both the property and profits of a common business or venture, the law treats it as their intention to become partners, in the absence of other controlling facts." In this case, the Court looked at the sharing of profits as prima facie evidence of a partnership. And because there was no controlling evidence that there was not a partership, the court held that the sharing of profits was evidence of the intent of a partnership and therefore held that there was a partnership.
Lupien v. Malsbenden Supreme Judicial Court of Maine,1984 477 A.2d 746 Pg. 8	The plaintiff contracted with Stephen Cragin, doing business as York Motor Mart, for the construction of a Bradley kit car. The car was never developed, leaving Cragin and York Motor Mart in breach of contract. The plaintiff sued Frederick Malsbenden as a partner in the enterprise. Malsbenden argued that he acted merely as a banker, who had loaned funds for the development of the Bradley cars, and that he was to be paid back from the proceeds of each car sold. However, the evidence showed that Malsbenden's role extended outside the scope of that of an investor and that he was frequently involved in the day-to-day operation of the business.	The Uniform Partnership Act defines a partnership as "an association of 2 or more persons . . . to carry on as co-owners a business for profit." In determining whether a partnership exists, the court will look at "evidence of an agreement, either express or implied, 'to place their money, effects, labor, and skill, or some or all of them, in lawful commerce or business with the understanding that a community of profits will be shared.' . . . No one factor is alone determinative of the existence of a partnership." In this case, the Court held that Maslbenden's involvement in the business supported the assertion that he was a partner.
Meinhard v. Salmon Court of Appeals of New York , 1928 249 N.Y. 458, 164 N.E. 545 Pg. 9	Salmon and Meinhard entered into a joint venture that centered around a twenty-year lease for the premises known as the Hotel Bristol at the northwest corner of Forty-second Street and Fifth Avenue in Manhattan. Before the lease ended, a third party approached Salmon about a new lease. Salmon entered into the new lease with the third-party and did not tell Meinhard. Meinhard sued for breach of duty of loyalty.	"Joint adventurers, like copartners, owe to one another, while the enterprise continues, the duty of the finest loyalty." A partner has a duty to disclose an opportunity to his partner(s) if the opportunity arises out of the partnership. The Court held in this case that opportunity did arise out of the partnership and thus Salmon had a duty to disclose the opportunity to Meinhard.
Thompson & Green Machinery Co. v. Music City Lumber Co. Court of Appeals of Tennessee, Middle Section, at Nashville, 1984 683 S.W.2d 340 Pg. 10	The president of Music City Sawmill Co., Inc. (defendant) purchased a wheel loader from the plaintiff, Thompson & Green Machinery Co., Inc. Unbeknownst to both the plaintiff and defendant Sawmill was not a corporation at the time of the transaction. Sawmill was not incorporated until one day after the sale of the wheel loader.	A de jure corporation may result if there is compliance with incorporation statutes. A de facto corporation may result if there has been an apparent and good faith attempt to incorporate under the statute and someone affiliated with the corporation is acting under corporate powers. In addition, if both parties to a transaction act as if there is a corporation, then the parties may be estopped from claiming the non-existence of such corporation. However, IN THIS CASE, the Court held that the statute eliminated the concepts of corporation de jure, de facto, or by estoppel.
Don Swann Sales Corp. v. Echols Court of Appeals of Georgia, 1981 160 Ga. App. 539, 287 S.E.2d 577 Pg. 11	Plaintiff sued defendant for the balance of an unpaid account. The account was in the name of Cupid's Inc., a corporation that was thought to be registered by the defendant. However, the corporation was not "properly" registered with the Secretary of State.	If both parties to a transaction act as if there is a corporation, then the parties may be estopped from claiming the non-existence of such corporation. IN THIS CASE, the Court held that although the statute eliminated the concepts of corporation de jure and de facto, the statute retained the doctrine of estoppel.
Sulphur Export Corp. v. Carribean Clipper Lines, Inc. United States District Court for the Eastern District of Louisiana, New Orleans Division, 1968 277 F. Supp. 632 Pg. 12	The president of Carribean Clipper Lines, Inc. executed a charter party agreement with Sulphur Export Corp. Carribean's articles of incorporation stated that it would not begin business until $1,000 was paid in as capital, which hadn't happened prior to the transaction with Sulphur and was therefore not effectively incorporated when the transaction took place.	If there is no attempt to incorporate, individuals will be held individually and severally liable.
Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp. Court of Chancery of Delaware, New Castle County, 1991 1991 WL 277613 Pg. 13	In Footnote 55, Chancellor Allen discusses the threatened insolvency of a corporation on incentives of the board to put corp creditors at greater risk. The footnote poses a hypothetical, where a corporation's sole asset is a judgment ($51M) against a solvent debtor. The case is on appeal. firm offers to settle for an amount that would satisfy debtholders, but does not really incentivize shareholders. Shareholders would chance appeal, because it is in their interest, but Court says that when a firm is near the "zone of insolvency," they have a fiduciary duty to debtholders.	In some circumstances, courts have held that boards owe debt holders a fiduciary duty when the firm is near the zone of insolvency, thus offering a creditor protection in the form of a fiduciary duty from boards. NB: Once corporation is insolvent, then there is duty to creditors. This is because shareholders only have a residual claim, which means they are insolvent. Insolvency generally means that shareholders get nothing.
Perpetual Real Estate Services, Inc. v. Michaelson Properties, Inc. United States Court of Appeals, Fourth Circuit, 1992 974 F.2d 545 Pg. 14	The defendant, Aaron Michaelson, formed Michaelson Properties, Inc. (MPI), for the purpose of entering into real estate ventures. MPI entered into two joint ventures with Perpetual Real Estate Services, Inc. (PRES), the plaintiff. One of the joint ventures was for the purpose of building condominiums. Michaelson and his wife personally guaranteed a portion of the financing. Several condo purchasers filed suit against the joint venture and PRES ended up paying the settlement. PRES then sued Michaelson and MPI, arguing that MPI was merely the "alter ego" of Michaelson, and thus subject to veil piercing.	In addition to showing that an individual used the corporation as a mere "department, instrumentality, agency, etc.," more is required to pierce the corporate veil, at least in Virginia. It must also be shown "that the corporation was a device or sham used to disguise wrongs, obscure fraud, or conceal crime." In this case, the defendant did not use the corporation for fraudulent purposes and therefore the veil piercing attempt failed.
Kinney Shoe Corp. v. Polan United States Court of Appeals for the Fourth Circuit, 1991 939 F.2d 209 Pg. 15	Polan, defendant, formed two corporations, Industrial and Polan Industries, Inc. In November 1984 Polan and Kinney began negotiating the sublease of a building. Polan used Industrial to sublease the building to Polan Industries. Polan signed the subleases on beahlf of the respective companies. Other than the sublease with Kinney, Industrial had no assets, no income, and no bank account and did not practice any corporate formalities. The first rental payment to Kinney was made by Polan from his personal funds. No further rental payments were made.	(1) Piercing the corporate veil is an equitable remedy, and the burden rests with the party asserting such claim. (2) A totality of the circumstances test is used in determining whether to pierce the veil. In this case the court applies a two prong test, which raises two issues: "first, is the unity of interest and ownership such that the separate personalities of the corporation and the individual shareholder no longer exist; and second, would an equitable result occur if the acts are treated as those of the corporation alone." The court decides for Kinney on both of those issues and overturns a third prong to the analysis which was misapplied by the district court. The third prong applied by the district court was that the creditor responsible for investigating the deal and then asserts assumption of risk if investigation was reasonable under the circumstances.
Bartle v. Home Owners Cooperative Court of Appeals of New York, 1955 309 N.Y. 103, 127 N.E.2d 832 Pg. 16	Defendant organized Westerlea Builders, Inc., a wholly-owned subsidiary, for the purpose of undertaking construction on low-cost housing for its members.	"The law permits the incorporation of a business for the very purpose of escaping personal liability. . . . Generally speaking, the doctrine of 'piercing the corporate veil' is invoke 'to prevent fraud or to achieve equity.'" In this case, the court finds that there was no fraud and thus there is no veil piercing.
Walkovsky v. Carlton Court of Appeals of New York, 1966 18 N.Y.2d 414, 223 N.E.2d 6, 276 N.Y.S.2d 585 Pg. 17	Defendant operated a fleet of cabs. The operation had ten different corporate entities, which were organized to shield the entire operation from liability.	"The law permits the incorporation of a business for the very purpose of enabling its proprietors to escape personal liability . . . but . . . the courts will disregard the corporate form, or, to use accepted terminology, 'pierce the corporate veil,' whenever necessary 'to prevent fraud or achieve equity' . . . ." Three takeaways: (1) You are allowed to setup complex corporations to cabin liability; (2) in order to get courts to respect the corporate entities, go through the motions of formalities; and (3) the distinction between veil piercing and enterprise liability is that enterprise liability - there is nothing wrong with one corporation being part of a larger corporate enterprise.
Fletcher v. Atex, Inc. United States Court of Appeals for the Second Circuit, 1955 8 F.3d 1451 Pg. 18	Eastman Kodak sued Atex for repetitive stress injuries from the negligent construction of keyboards.	"To prevail on an alter ego claim under Delaware law, a plaintiff must show (1) that the parent and the subsidiary 'operated as a single economic entity' and (2) that an 'overall element of injustice or unfairness . . . [is] present.' Among the factors to be considered in determining whether a subsidiary and parent operate as a 'single economic entity' are: '[W]hether the corporation was adequately capitalized for the corporate undertaking; whether the corporation was solvent; whether dividends were paid, corporate records kept, officers and directors functioned properly, and other corporate formalities were observed; whether the dominant shareholder siphoned corporate funds; and whether, in general, the corporation functioned as a facade for the dominant shareholder.'"
Kamin v. American Express Company Supreme Court of New York, Special Term, New York County, 1976 383 N.Y.S.2d 807 Pg. 19	American Express Company purchased Donaldson, Luken and Jenrette, Inc. (DLJ) at a cost of $29.9 million. DLJ's market value at the time of litigation was $4.0 million. Instead of selling DLJ's shares on the market, where American Express would sustain a large loss, which could be offset against taxable capital gains on other investments, saving the company $8 million, American Express declared a special dividend to shareholders of record pursuant to which the shares of DLJ would be distributed in kind. The rationale was that reporting the loss would have an adverse effect on American Express stock. The plaintiffs brought suit alleging a waste of corporate assets.	". . . The question of whether or not a dividend is to be declared or a distribution of some kind should be made is exclusively a matter of business judgment for the Board of Directors. . . . Courts will not interfere with such discetion unless it be first made to appear that the directors have acted or are about to act in bad faith . . ." The court dismissed the complaint.
Pillsbury v. Honeywell, Inc. Supreme Court of Minnesota, 1971 191 N.W.2d 406 Pg. 20	Petitioner purchased 100 shares of Honeywell stock to gain a voice in company affairs. The petitioner was motivated by Honeywell's production of antipersonnel fragmentation bombs that were being used in Vietnam. His requests for a shareholder list was refused.	A stockholder is entitled to inspection for a proper purpose germane to his business interests. Inspections resulting in the production of shareholder lists are proper only if the shareholder has a proper purpose for such communication. In this case, the court held that petitioner's request was not related to business interests, but was rather an attempt to assert his political views on the corporation. There is an important policy note in this case: "Because the power to inspect may be the power to destroy, it is important that only those with a bona fide interest in the corporation enjoy that power."
Security First Corp. v. U.S. Die Casting and Development Co. Delaware, 1997 687 A.2d 563 Pg. 21	U.S. Die Casting and Development Co. sued Security First Corp. to produce documents related a merger agreement.	A stockholder needs to demonstrate a proper demand for books and records in order to be granted access. The demand for documents must be tailored to the purpose and, "[t]he Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection."
Hilton Hotels Corp. v. ITT Corp. (Hilton I) United States District Court for the District of Nevada, 1997 962 F. Supp. 1309 Pg. 22	Hilton Hotels Corp. sued ITT Corp. for a preliminary injunction requiring that ITT conduct its annual meeting. Hilton was attempting to engage in a hostile takeover.	Nevada law requires annual meetings to be held within 18 months of a company's last annual meeting. In this case, ITT had not delayed greater than 18 months and was therefore not required to hold an annual meeting. The Court further held, "ITT's Board of Director's retains reasonable discretion in setting an annual meeting to resist hostile takeover offers. . . ."
Hilton Hotels Corp. v. ITT Corp. (Hilton II) United States District Court for the District of Nevada, 1997 978 F.Supp. 1342 Pg. 23	Subsequent to previous litigation concerning the timing of an annual shareholder meeting, Hilton made a tender offer for the stock of ITT and announced plans for a proxy contest. ITT attempted to fend off takeover attempts by restructuring the corporation and forming a subsidiary that would allow ITT to change voting rules and thus thwart Hilton's attempt at a proxy fight.	Where an acquiror launches both a proxy fight and a tender offer, it "necessarily invokes both Unocal and Blasius. . ." "Unocal requires the Court to answer the following two questions: 1) Does ITT have reasonable grounds for believing a danger to corporate policy and effectiveness exists? 2) Is the response reasonable in relation to the threat? If it is a defensive measure touching on the issues of control, the court must examine whether the board purposefully disenfranchised its shareholders, an action that cannot be sustained without compelling justification." The Blasius rule states that "[E]ven if an action is normally permissible, and the board adopts it in good faith and with proper care, a board cannot undertake such action if the primary purpose is to disenfranchise shareholders in light of a proxy contest."
Schnell v. Chris-Craft Industries, Inc. Supreme Court of Delaware , 1971 285 A.2d 437 Pg. 24	Plaintiffs, who were stockholders of the defendant, sought a preliminary injunction against the carrying out of a change in the date of its annual meeting of stockholders, which was accomplished by an amendment in the company bylaws. The plaintiff's sought to install new management and directors in response to poor company performance. They contended that by advancing the date of the annual meeting, the defendant "deliberately sought to handicap the efforts of plaintiffs and other stockholders." The Court denied a preliminary injunction declaring the change of corporate bylaws null and void. The plaintiffs appealed.	A corporation may not amend its by-laws to change the voting system for an inequitable purpose. In this case, the court reversed the judgment, finding that the purpose of the amendment of the by-laws was inequitable.
Stroud v. Grace Supreme Court of Delaware, 1992 606 A.2d 75 Pg. 25	Milliken Enterprises, Inc. - a large privately held textile business - was primarily held by the Milliken family. The family entered into a General Option Agreement, where Milliken family members would have rights of first refusal to purchase Milliken stock. In addition, the Milliken's amended the bylaws of the company to insulate the Milliken family from any future proxy fight.	There are two primary standards the court looks at in evaluating the actions of the board of directions: (1) the Unocal rule, which states that directors can take defensive actions by amending bylaws and are protected by the business judgment rule during contests for corporate control if the directors have "reasonable grounds for believing that a danger to corporate policy and effecitiveness existed . . ." and if the board's response "was reasonable in relationto the threat posed"; and (2) the Blasius rule which looks to the intrinsic fairness of amendments. IN THIS CASE, the court held that there was no threat to takeover, so the Unocal standard did not apply and that the shareholders were informed, so there was no issue of intrinsic unfairness.
MM Companies, Inc. v. Liquid Audio, Inc. Supreme Court of Delaware, 2003 813 A.2d 1118 Pg. 26	Liquid Audio and MM Companies, both Delaware corporations, engaged in a contest for control over the board of directors. MM, a more than 7 percent shareholder in Liquid Audio, attempted to gain control of Liquid Audio for more than a year. MM first offered to acquire Liquid Audio. After that offer was rejected, MM announced its intention to nominate its own candidates for two seats on the Liquid Audio board, which consisted of five members. Subsequently, Liquid Audio announced a stock-for-stock merger transaction with "white knight," Alliance Entertainment Corp. MM's board candidates were elected to the board and Liquid Audio, fearful that other board members would resign due to the contentious environment MM's board members would likely bring to the boardroom, expanded the board from five to seven members. This had the effect of nullifying the impact of the election of MM's board candidates.	The Court applies both the Blasius and Unocal rules and holds that they are not mutually exclusive. Blasius holds that when the primary purpose of the Board's action was to interfere with or impede the effective exercise of the shareholder franchise in a contested election for directors, the Court will apply a compelling justification standard of review. The Unocal requirement states that any defensive measure be proportionate and reasonable in relation to the threat posed. In this case, the Court applies the Blasius standard of review into the Unocal test and holds that because there is an interference in the effective exercise of the shareholder franchise and there is no compelling justification, Liquid Audio's action is not valid.
Datapoint Corp. v. Plaza Securities Co. Supreme Court of Delaware, 1985 496 A.2d 1031 Pg. 27	Asher B. Edelman, general partner of both plaintiffs and beneficial owner of more than 10% of Datapoint's stock, advised the latter's chairman that he was interested in acquiring control of Datapoint and submitted a written proposal to acquire control of Datapoint. However, Datapoint's board of directors rejected the offer. Edelman renewed his offer and stated that if it were rejected he would consider the solicitation of consents from shareholders. A few days later the company amended its bylaws, which prior to Edelman's offer had no provision relating to shareholder consents. The new bylaw provided management with more time to explore alternatives. The issue is whether the bylaw designed to limit the taking of corporate action by written shareholder consent in lieu of a stockholder's meeting conflicts with the Delaware code governing consent of stockholders in lieu of meeting. The Court of Chancery preliminarily enjoined Datapoint from enforcing the bylaw and Datapoint appeals.	A bylaw, which is so pervasive as to intrude upon fundamental stockholder rights guaranteed by statute, is invalid.
Lacos Land Co. v. Arden Group, Inc. Court of Chancery of Delaware, New Castle, 1986 517 A.2d 271 Pg. 28	Briskin, the CEO of Arden Group, who had been the driving force behind the company's growth, proposed the creation of a supervoting class of stock. The stock was intended to secure Briskin's voting control over the company. In his proxy statement, Briskin asserted that stockholders should vote for the new class, and that if they didn't he wouldn't give his support to transactions for which his approval might be required. The plaintiff brought suit derivatively to enjoin the issuance of the supervoting class of stock.	An officer or director of a company cannot use threats to coerce a vote by asserting that they will act in contravention of their fiduciary duty if such vote is not so obtained. In this case, the court held that Briskin's proposal conflicted with his duty to shareholders and therefore the court granted the plaintiff's motion.
Schreiber v. Carney Court of Chancery of Delaware, New Castle, 1982 447 A.2d 17 Pg. 29	Jet Capital Corporation owned 35% of Texas International Airlines, Inc. and had veto power over a proposed merger between Texas International and another company. Jet claimed that it would veto the proposed merger unless it could exercise warrants it held in Texas International. However, Jet need cash to finance the exercising of the warrants and suggested that Texas International provide the necessary funds. Texas International and Jet proposed the financing and the board approved. As a condition to the approval and based on an awareness of impropriety, the company's required a majority of shares voted by stockholders other than Jet and Texas International. The plaintiff brought suit alleging that Texas International's loan constituted vote buying, as Texas International's loan removed Jet's opposition to the proposed merger.	". . . [A]n agreement relating to voting must be considered and voting agreements in whatever form, therefore, should not be considered to be illegal per se unless the object or purpose is to defraud or in some way disenfranchise the other stockholders. This is not to say, however, that vote-buying accomplished for some laudible purpose is automatically free from challenge. Because vote-buying is so easily susceptible of abuse it must be viewed as a voidable transaction subject to a test for intrinsic fairness." The court concluded that because (1) the intent was not to defraud or disenfranchise the other shareholders and (2) that the the loan agreement was voidable and thus subject to shareholder approval and was subsequently ratified by a fully informed majority of the independent stockholders, the transaction was valid.
Speiser v. Baker Court of Chancery of Delaware, New Castle, 1987 525 A.2d 1001 Pg. 30	Speiser and Baker established a subsidiary of Health Chem (Chem), Medallion, which invested in Health Med (Med) and held 10% of the common shares and all of the convertible preferred shares, giving a 95% voting interest if converted. Speiser and Baker each held 45% of Med and Med received a 42% ownership interest in Chem. This complex structure enabled Speiser and Baker to purchase control of Chem, using Chem's money. Speiser and Baker had a falling-out and Speiser sued to compel an annual meeting, which required Baker's presence, and Baker filed cross-claims and counterclaims, seeking declaratory judgment that Med not be permitted to vote its 42% stock interest in Chem.	Delaware General Corporate Law Section 160(c) provides the following: "Shares of its own capital stock belonging to the corporation or to another corporation, if a majority of the shares entitled to voted in the election of directors of such other corporation is held directly or indirectly, by the corporation, shall neither be entitled to vote nor counted for quorum purposes." The court held that although the structure established by Speiser and Baker technically fell outside the scope of the statute, the statute's purpose was to prevent the type of voting structure established by Speiser and Baker. Thus, the voting structure was in violation of the statute.
Shlensky v. Wrigley Appellate Court of Illinois, First District, Third Division, 1968 95 Ill. App. 2d 173, 237 N.E.2d 776 Pg. 31	The plaintiff was a shareholder in The Chicago National League Ball Club, Inc., a Delaware corporation. He brought a derivative suit against the company's directors and majority shareholder and President, Phillip K. Wrigley, charging that Wrigley did not exercise reasonable care in his failure to schedule night games, which, according to the plaintiff, resulted in the company suffering economic losses. The plaintiffs suit was dismissed for failure to state a cause of action and he appealed.	"Courts will not step in and interfere with honest business judgment of the directors unless there is a showing of fraud, illegality or conflict of interest."
Smith v. Van Gorkom Supreme Court of Delaware, 1985 488 A.2d 858 Pg. 32	Trans Union, a large publicly traded, diversified holding company, whose primary revenue stream was railcar leasing, was generating significant investment tax credits (ITCs), which they could not utilize because of insufficient taxable income. In response to the ITC problem, the management team presented the Board with a report, which recommended courses of action in dealing with the ITC issue. The sale of Trans Union was not one of the recommended strategies. Nevertheless, Jerome Van Gorkom, Trans Union's CEO and Chairman, pursued selling Trans Union to a company with a large amount of taxable income. Van Gorkom proposed a share price of $55, which was above market value, but there was no evidence that the $55 figure represented the per share intrinsic value of the company. Van Gorkom negotiated a deal privately with Jay Pritzker, a well-known corporate takeover specialist. Van Gorkom presented to the Board a merger proposal involving Pritzker. Subsequent to the board meeting and without any director reading it, Van Gorkom signed the merger agreement at the opening of the Chicago Lyric Opera. Pritzker and Van Gorkom then signed amendments to the merger agreement, which deviated from Van Gorkom's representations to the board and which made it difficult for Trans Union to negotiate a better deal. 70% of the shareholders approved the merger. The Court of Chancery found that the Board had given sufficient time and attention to the transaction to reach an informed business judgment on the cash-out merger proposal.	The concept of gross negligence is the proper standard for determining whether a business judgment reached by a board of directors was an informed one. In this case, the Court held that the Board did not reasonably inform themselves of the transaction and were therefore not protected by the business judgment rule.
Gagliardi v. Trifoods International, Inc. Court of Chancery of Delaware, New Castle, 1996 683 A.2d 1049 Pg. 33	Plaintiff, Eugene Gagliardi, founded Trifoods International, Inc. In 1993, he was removed as Chairman. Subsequent to plaintiff's ouster, Trifoods suffered financially, as management made a string of bad decisions, including buying a redundant new product facility, acquiring Steak-umms from Heinz and Lloyd's Ribs at egregiously high prices. Plaintiff is suing on theories of negligent mismanagement and corporate waste.	"In the absence of facts showing self-dealing or improper motive, a corporate officer or director is not legally responsible to the corporation for losses that may be suffered as a result of a decision that an officer made or that directors authorized in good faith. There is a hypothetical exception to this general statement that holds that some decisions may be so 'egregious' that liability for losses they cause may follow even in the absence of proof of conflict of interest or improper motivation." In this case, the Court holds that the exception is only limited to equitable relief and since there is no equitable relief requested, the complaint does not state a claim for which relief can be granted. In addition, the claim attempts to plead corporate waste. The corporate waste rule may be applied if what the corporation has received is so inadequate in value that no person of ordinary, sound business judgment would deem it worth what the corporation has paid. The Court holds that there was no corporate waste.
In re Caremark International, Inc. Derivative Litigation Court of Chancery of Delaware, New Castle, 1996 698 A.2d 959 Pg. 34	Caremark International, Inc. was indicted and pleaded guilty to violating a federal statute which made it a felony to pay kickbacks to persons for referring Medicare and Medicaid patients to it. The company was forced to pay approximately $250 million in criminal fines and civil reimbursement. The suit is a derivative action against the board, asserting negligence and a failure to monitor company activity.	"In order to show that . . . directors breached their duty of care by failing adequately to control . . . employees, plaintiffs would have to show either (1) that the directors knew or (2) should have known that violations of law were occurring and, in either event, (3) that the directors took no steps in a good faith effort to prevent or remedy that situation, and (4) that such failure proximately resulted in the losses complained. . . ." The court held that because the misfeasance was not an activity with which a board would normally concern itself, that the board was not liable.
Cookies Food Products, Inc. v. Lakes Warehouse Distributing, Inc. Supreme Court of Iowa, 1988 430 N.W.2d 447 Pg. 35	In 1975, L.D. Cook organized Cookies Food Products, Inc. as a barbecue sauce manufacturing and distributorship. The company was not very successful until, Duane "Speed" Herrig began distributing the barbecue sauce to retail outlets. Over the years, Herrig's distributorship agreement spurred significant growth in barbecue sauce revenue. In 1981, Herrig acquired a majority stake in Cookies and in 1982, Herrig even developed his own taco sauce! Herrig received royalties for the taco sauce and his distribution agreement with Cookies increased subsequent to his acquisition of a majority interest. The plaintiff alleges that Herrig was involved in self-dealing.	"No contract or other transaction between a corporation and one or more of its directors or any other corporation, firm, association or entity in which one or more of its directors are directors or officers or are financially interested, shall be either void or voidable because of such relationship or interest . . . if any of the following occur: 1. The fact of such relationship or interest is disclosed or known to the board of directors or committee which authorizes, approves, or ratifies the contract or transaction . . . without counting the votes . . . of such interested director. 2. The fact of such relationship or interest is disclosed or known to the shareholders entitled to vote [on the transaction] and they authorize . . . such contract or transaction by vote or written consent. 3. The contract or transaction is fair and reasonable to the corporation." The court found that there was no disclosure issue and that the contract between Cookies and Herrig was fair and reasonable to the corporation.
Irving Trust Co. v. Deutsch Circuit Court of Appeals, Second Circuit, 1934 73 F.2d 121 Pg. 36	Defendant Bell was employed by Acoustic Products Company, a Delaware corporation chartered to deal in musical equipment, to negotiate a deal with Reynolds and W.R. Reynolds & Co. for a patent held by De Forest Company. De Forest was in receivership and Reynolds was in control of the company under contract. Acoustic needed the patent to carry out its business. Bell failed in negotiating a deal, but Bell with the assistance of Biddle was offered participation in the acquisition of De Forest. Acoustic tried to raise capital to acquire a minority interest in De Forest, but was unable. The directors of Acoustic agreed to buy the shares individually and made a large profit. The trustee of Acoustic in bankruptcy brought suit against the acquiring individuals for the profits. The District Court dismissed the complaint and the plaintiff appeals.	That a corporation is financially unable to take advantage of a corporate opportunity does not free the agent to take such opportunity. A fiduciary may make no profit for himself out of a violation of duty and anyone who assists in the fiduciary's dereliction is likewise liable to account for the profit so made. The court reversed the dismissal.
Rapistan Corp. v. Michaels Court of Appeals of Michigan, 1994 203 Mich. App. 301, 511 N.W.2d 918 Pg. 37	Michaels, Tilton and O'Neill were Rapistan Corp. executives who resigned from Rapistan and began working with another holding company aiming to acquire a conveyer manufacturer, Alvey. Once the company was acquired, the executives became executives at Alvey. Plaintiff, Rapistan and its holding company sued on the basis that defendants misappropriated a corporate opportunity and misused confidential information.	If a director or officer is presented with a business opportunity that the corporation can financially undertake, and if the business opportunity is in the nature and in the line of the corporation's business and would be a practical advantage to it and the corporation has a reasonable expectancy in the opportunity, then a director can't seize the opp for himself. The Court also mentions the "Guth corollary," which states that when a business opportunity comes to a corporate officer or director in his individual capacity, and is not essential to the corporation, and the corporation has no interest or expectancy in the opportunity, then the director or officer has not wrongfully embarked the corporation's resources therein. In this case, the court said that there was not a direct or substantial nexus between use of Rapistan assets and the creation, development, and acquisition of the Alvey opportunity.
Case v. New York Central R.R. Court of Appeals of New York, 1965 15 N.Y.2d 150, 204 N.E.2d 643, 256 N.Y.S.2d 607 Pg. 38	Plaintiffs, minority stockholders of Mahoning Coal Railroad Company, filed suit against Mahoning's parent, New York Central Railroad Company, for an accounting of proceeds from an unfair agreement between Mahoning and the parent.	"[A] fiduciary parent corporation cannot retain the benefits of an unfair agreement. . . . A basic ground for judicial interference with corporate decisions on complaint of minority interests is an advantage obtained by the dominant group to the disadvantage of the corporation or its minority owners." The court holds that the agreement was fair to Mahoning and thus, there was no breach of the fiduciary relationship between the parent and the subsidiary.
In re Wheelabrator Technologies, Inc. Shareholders Litigation Court of Chancery of Delaware, New Castle, 1995 663 A.2d 1194 Pg. 39	The case is a shareholder class action, challenging a merger between Wheelabrator Technologies, Inc. (WTI) into a wholly-owned subsidiary of Waste Management, Inc. (Waste). In 1988, Waste acquired a 22% equity interest in WTI in exchange for certain assets that Waste sold to WTI. In 1990, Waste sought to become a majority shareholder in WTI, by acquiring an additional 33% stake in the company. The board held a special meeting and voted unanimously to approve and recommend the merger. The merger was then approved at a special shareholders meeting by a majority of WTI shareholders other than Waste. The plaintiffs allege that WTI and director defendants breached their fiduciary obligation to disclose material class information regarding the merger. The plaintiffs also claim that in negotiating and approving the merger, the director defendants breached their fiduciary duties of loyalty and care.	Ratification decisions that involve duty of loyalty claims are of two kinds: (a) "interested" transaction cases between a corporation and its directors (or between the corporation and an entity in which the corporation's directors are also directors or have a financial interest), and (b)cases involving a transaction between the corporation and its controlling shareholder. Regarding the first category, an 'interested' transaction of this kind will not be voidable if it approved in good faith by a majority of disinterested stockholders. Approval by fully informed, disinterested shareholders invokes "the business judgment rule and limits judicial review to issues of gift or waste with the burden of proof upon the party attacking the transaction." In the second category, cases involving a transaction between the corporation and its controlling shareholder, if the parent-subsidiary merger is conditioned on receiving from a majority of the minority, and approval is given, then the standard of review remains entire fairness, but the burden of demonstrating that the merger was unfair shifts to the plaintiff. The court held that because Waste was not a majority stockholder, the entire fairness standard of review didn't apply and the correct standard was the business judgment rule.
Marx v. Akers Court of Appeals of New York, 1996 88 N.Y.2d 189, 644 N.Y.S.2d 121, 666 N.E.2d 1034 Pg. 42	The plaintiff commenced a shareholder derivative suit against IBM without first demanding that the board initiate a lawsuit. The issue is whether the Appellate Division abused its discretion by dismissing plaintiff's complaint for failure to make a demand and whether plaintiff's complaint fails to state a cause of action.	When a plaintiff does not go through the demand process, the plaintiff must prove the futility of demand. To prove the futility of demand, the plaintiff must allege particularized facts which create a reasonable doubt that, "(1) the directors are disinterested and independent and (2) the challenged transaction was otherwise the product of a valid exercise of business judgment." The court held that a director who voted for a raise in a directors' compensation is always interested.
Levine v. Smith Supreme Court of Delaware, 1991 591 A.2d 194 Pg. 43	Shareholders brought a derivative suit against the board of directors challenging the repurchase from the corporation's largest shareholder - Ross Perot. The issue concerned what standard the court should apply when a demand for a suit has been refused.	A shareholder plaintiff, by making demand upon a board before filing suit, "tacitly concedes the independence of a majority of the board to respond." Therefore, when a board refuses a demand, the only issues to be examined are the good faith and reasonableness of its investigation. Thus, the court was only required to apply the business judgment rule to the Board's refusal of Levine's demand.
Weinberger v. UOP, Inc. Supreme Court of Delaware, 1983 457 A.2d 701 Pg. 45	Signal Companies purchased 51.5% of Universal Oil Products Company's (UOP's) stock. Signal then decided to acquire the remaining outstanding stock of UOP stock through a cash-out merger. Plaintiff challenged the cashing-out of UOP's minority shareholders and brought a duty of loyalty claim against UOP's directors.	(1) The plaintiff in a suit challenging a cash-out merger must allege specific acts of fraud, misrepresentation, or other items of misconduct to demonstrate the unfairness of the merger terms to the minority; (2) In a cash-out merger, the burden of proof is on the majority to show by a preponderance of the evidence that the transaction is fair; (3) It is first the burden of the plaintiff attacking the merger to demonstrate some basis for invoking the fairness obligation; and (4) Where corporate action has been approved by an informed vote of a majority of minority shareholders, the burden entirely shifts to the plaintiff to show that the transaction was unfair to the minority. The standard applied by the court is known as the ENTIRE FAIRNESS standard, which means that the merger must be fair in both price and process. The court held that the vote wasn't informed and that there were conflicting duties because of similar directors in both target and acquiring companies.
Cheff v. Mathes Supreme Court of Delaware, 1964 41 Del. Ch. 494, 199 A.2d 548 Pg. 46	Maremont, an active corporate financier inquired about merging the Holland Furnace Company into one of his companies. Maremont began actively purchasing Holland stock. Because of Maremont's reputation for liquidating companies, the field sales force was considering leaving in large numbers. Maremont suggested that either a family holding company that held 18.5% either sell their shares to him or that Holland buy his shares. The board decided to buy Maremont's shares at $14.40 a share, a price higher than the market price. Plaintiff, holder of 60 shares, filed a derivative suit, requiring directors to account for damages. The trial court held for plaintiffs, as they found that Maremont posed no threat and that the true impetus behind the acquisition of shares was to perpetuate control.	The Bennett rule: When a corporation purchases its own stock to thwart a hostile offer, the DEFENDANT has the burden of proving reasonable grounds to believe a danger to corporate policy and effectiveness existed. In this case, the court found that the board did have reasonable grounds to believe that Maremont posed a threat to corporate policy and therefore reversed the judgment of the trial court.
Unocal Corp. v. Mesa Petroleum Co. Supreme Court of Delaware, 1985 493 A.2d 946 Pg. 47	On April 8, 1985, Mesa, the Owner of approximately 13% of Unocal's stock, commenced a two-tiered hostile tender offer. The first tier was a cash offer of $54 per share for 64 million shares, which would give Mesa an additional 37% of the company's stock. The second tier, or "back-end" was designed to eliminate the remaining publicly held shares through the issuance of debt securities, which Mesa referred to as junk bonds. The Unocal board then met with investment bankers and counsel, who provided the board with the opinion that the Mesa offer was inadequate. As a defensive measure, it was suggested that Unocal pursue a self-tender, which excluded Mesa, to provide shareholders with a fairly priced alternative to the Mesa proposal. Mesa challenged the legality of its exclusion from Unocal's self-tender.	When evaluating defensive measures a board has undertaken in response to a hostile takeover, the directors must satisfy a two-pronged threshold for their actions to fall within the ambit of the business judgment rule: (1) that they had reasonable grounds for believing that a danger to corporate policy and effectiveness existed because of another person's stock ownership; and (2) that the defensive measure was reasonable in relation to the threat posed. In this case, the court found that the Unocal board satisfied both elements.
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. Supreme Court of Delaware, 1986 506 A.2d 173 Pg. 48	Pantry Pride made a hostile tender offer for Revlon at $45 per share, which the board considered grossly inadequate. In response to the tender offer, Revlon adopted a poison pill plan and made a self-tender offer for over 33% of its outstanding shares. Under the poison pill plan, shareholders were able to exchange shares for a $65 principal note at 12%. Pantry Pride increased its offer for Revlon and Revlon responded by entering into a leveraged buyout with Forstmann Little, which the court held was a valid exercise of business judgment. However, as part of the leveraged buyout, Revlon granted Forstmann a lock-up option to purchase two of Revlon's divisions. The lock-up option prevented other firms from bidding on the company's assets.	A lock-up, or no-shop provision, while not per se illegal, is impermissible under the Unocal standards when a board's primary duty becomes that of an auctioneer responsible for selling the company to the highest bidder. The court held that "Favoritism for a white knight to the total exclusion of a hostile bidder might be justifiable when the latter's offer adversely affects shareholder interests, but when bidders make relatively similar offers, or dissolution of the company becomes inevitable, the directors cannot fulfill their enhanced Unocal duties by playing favorites with the contending factions. Market forces must be allowed to operate freely to bring the target's shareholders the best price available for their equity."

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