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Fiduciary (Fid.) Duties

Categories of Fid. Duties

  • Duty of Care
  • Duty of Loyalty
  • Duty of Maj. 2 Min.

Duty of Care by Managers of Corp.: Dir'or & Officer

  1. Dev. of Duty
    1. Dif. Stand's
      1. C /L of how rsbly prudent person would manage his own affairs / $
      2. Stt. higher stand. of rsbl person in like position would've managed
      3. Duty 2 creditor indir'ly by cases (Bates banker case, Francis)
      4. Expect highest degree of care if potential harm great (Francis)
  2. Busi. Jgmt
    1. Dif. Stand's
      1. Stupid busi. jgmt not 2nd guessed by ct unless bd. acted in self-int.(Kamin)
      2. No busi. jgmt defense & dir'ors need rational basis 4 exercising busi. jgmt (Smith v. Van Gorkam)
    2. Active Monitoring by Dir'ors
      1. Dir'or has cert. resp. like reading fin. stmt instead of doing nothing (Francis v. United Jersey Bank (mom can't control))
    3. Leg.
      1. OH where liab. only if bd. delib'ly intended 2 harm corp. / acted in reckless disregard of its int's
      2. DL allows amendment in article of incorp. by SH vote 2 expressly elim. duty of care
      3. CA §204.10 follows DL but can't
        1. Elim. liab. 4 reckless disregard of duties where should've been aware of risk of serious injury
        2. Elim. liab.'s on acts / omissions constituing pattern of inattn amt'ing 2 an abdication fo dir'ors duty
      4. ALI says overall duty of inquiry by dir'ors & busi. jgmt as defense if
        1. Dir'or not int'ed in trxn
        2. Informed 2 extent rsbly believes is nec. & is in best int. of corp

Duty of Loyalty

  1. Int'ed v. Interlocking Dir'or
    1. Before No Distinction & K Void
      1. But int'ed dir'or has fin. int. on other side of trxn
      2. Interlocking dir'or has lwr conflict b/c may not have fin. int.
    2. Stand's
      1. K enforceable if approved by disint'ed dir'ors & fair (Globe) w/more wt. on fairness
    3. Stt's
      1. Int. def'ed narrowly 2
        1. Blood / family ties
        2. Fin. int.
      2. DL §144 not makes distinction btwn int'ed & interlocking dir'or K's
        1. K ok if fair + approved by dir'or / SH /
        2. K ok if disint'ed dir'ors approved in good faith after full discl. of conflict of int. & material terms of K /
        3. K ok if SH approved in good faith after discl. of conflict & material terms
      3. CA disting's §310)a: Int'ed Dir'or
        1. K ok if approved by SH in good faith after full discl /
        2. K ok if fair /
        3. Disint'ed dir'or approval
          1. K must B fair but b/p 4 unfairness if disint'ed dir'or ok's
          2. If no dir'or approval, b/p 4 fair on bd.
      4. CA §310)b: Interlocking Dir'or
        1. K ok if disint'ed dir'or approval /
        2. SH approval /
        3. Fair
    4. SH Ratification Under DL §144 (In re Wheelabrator Tech.)
      1. Only elim. voidable K issue, not fid. duty of loyalty
  2. Corp. Opp. Doc.
    1. Issues
      1. When officer / dir'or can pursue busi. opp. indiv'ly
      2. When should offer opp. 2 corp.
    2. Stand's
      1. If same line of busi. of corp. then corp. opp. & fin. ability 2 pursue (NE Harbor Golf Club v. Harris)
      2. ALI def's corp. opp. the way presented
        1. Whenever opp. communicated 2 officer / dir'or in his capacity as officer / dir'or so expect 2 offer 2 corp. / when rep. corp. OR
        2. Learned through corp. info / prop. OR
        3. Dir'or / officer is full X ee / closely rel'ed 2 corp.
      3. ALI axn 2 take as dir'or / officer
        1. Before pursue, must have offered & rejected by corp. fairly / approved by disint'ed dir'ors

Duty of Maj. SH 2 Min. SH

  1. Nat. of Oblgn
    1. Fid. Duty
      1. SH can pursue own int. but when act like dir'or then fid. resp. (Zahn)
      2. Fid. can't grossly overreach but can overreach some (Zahn, call back)
        1. So can elim. double liq. pref. 2 pursue priv. benefit @ other SH's cost but can't take SH's out of liq. altogether in Zahn
      3. If results in benefit only 2 maj. SH w/o sharing, then SS 2 rev. fairness
      4. If benefit shared, defer 2 busi. jgmt's of those making dec. (Sinclair)
      5. When corp. not party in trxn, duty of good faith & inherent fairness when trxn is material 2 control (Jones, holding co.)
        1. Material control dif. from use of control
    2. Factors 2 Find Breach of Fid. Duty
      1. Slime factor
      2. Maj. coalition more suspect than maj. SH
      3. Uniqueness / complexity of trxn 2 benefit maj. SH like holding co.
        Harmful instead of neutral effect on min. SH by trxn
      4. After trxn, if maj. exited busi. then more innocent than if restructured so keep min. out
    3. Dif. Views on Fid. Duty
      1. K view of fill gap people would've made 2 facilitate investment & can waive if want 2
      2. Moral view of so can't waive
  2. Transfer of Control
    1. Fid. Resp. in Transfer Sit.: Looting Sit's
      1. No fid. resp. from SH but exists 4 officer who can't resign leaving corp. w/o proper care & protection (Gerdes v. Reynolds)
        1. Factors of investig. of buyer, notice 2 other SH of transfer, & price paid
      2. Fid. resp. 4 seizing control premium paid by buyer as asset of corp. & looting by pocketing $ from it (Perlman)
        1. Maj. not hold premium as asset of corp. but gen'ly belongs 2 SH
        2. Premium is corp. asset when ass'ed w/something corp. is losing / belonging 2 corp. (Essex Universal Corp. v. Yates)
          1. If buyer competitor
          2. If buyer isn't competent manager

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12/2/1996

Ms. Haeji Hong

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