Commentaries and Cases on the Law of Business Organization

Front Matter
	Editorial Advisors
	Title Page
	Copyright
	About Wolters Kluwer Legal & Regulatory U.S.
	Dedication
	Epigraph
	Summary of Contents
	Contents
	Preface
	Acknowledgments
Introduction
1. Acting Through Others: The Law of Agency
	1.1 Introduction to Agency
	1.2 Agency Formation, Agency Termination, and Principal’s Liability
		1.2.1 Formation
		1.2.2 Termination
		1.2.3 Parties’ Conception Does Not Control
			Jenson Farms Co. v. Cargill, Inc.
	1.2.4 Liability in Contract
		1.2.4.1 Actual and Apparent Authority
			White v. Thomas
		1.2.4.2 Inherent Authority
			Gallant Ins. Co. v. Isaac
		1.2.4.3 Agency by Estoppel or Ratification
		1.2.5 Liability in Tort
			Humble Oil & Refining Co. v. Martin
			Hoover v. Sun Oil Co.
		1.2.6 Liability in Tort Under the Apparent Authority Doctrine
	1.3 The Governance of Agency (The Agent’s Duties)
		1.3.1 The Nature of the Agent’s Fiduciary Relationship
2. Jointly-Owned Firms: The Law of Partnership and other Contractual Entities
	2.1 Introduction to Partnership: Why Joint Ownership?
		2.1.1 Partnership Agreements and Partnership Law
	2.2 Partnership Formation
		Vohland v. Sweet
	2.3 Personal Liability and the Nature of Partnership Property
		2.3.1 Partnership Creditors’ Claims Against Departing Partners
		2.3.2 Third-Party Claims Against Partnership Property
	2.4 Partnership Governance and Issues of Authority
		National Biscuit Co. v. Stroud
		2.4.1 Partnership Accounting
			Sample Partnership Balance Sheet
			Sample Partnership Income Statement
			Accounting for Partners’ Capital
	2.5 Termination (Dissolution and Dissociation)
		Adams v. Jarvis
		2.5.1 Statutory Dissolution of a Partnership at Will
		2.5.2 Opportunistic Dissolution and the Duty of Loyalty
			Page v. Page
	2.6 Agency Conflicts Among Co-Owners: Fiduciary Duties
		Meinhard v. Salmon
	2.7 After Partnership: The New and the “New-Old” Contractual Entities
		2.7.1 Opting Out of Fiduciary Duties by Contract
			Pappas et al. v. Tzolis
		2.7.2 Judicial Review After Effectively Opting Out of Fiduciary Duties?
			2.7.2.1 The New (Old) Limited Partnership and the Implied Covenant
				Dieckman v. Regency GP LP
			2.7.2.2 A New (New) Entity Form: The Limited Liability Company and the Implied Covenant
		2.7.3 An Overview of the New Contractual Entities
			2.7.3.1 Contractual Flexibility
			2.7.3.2 Taxation
			2.7.3.3 Where the New Contractual Entities Are Used
3. The Corporate Form
	3.1 Introduction to the Corporate Form
		3.1.1 Some Analytical Distinctions
		3.1.2 Public, Private, and Close Corporations
		3.1.3 Controlled Corporations
	3.2 Creation of a Fictional Legal Entity
		3.2.1 A Note on the History of Corporate Formation
			3.2.1.1 Federal-State Division of Jurisdiction
			3.2.1.2 Special Acts of Incorporation
			3.2.1.3 General Incorporation Statutes
			3.2.1.4 The Erosion of Regulatory Corporate Law
		3.2.2 The Process of Incorporating Today
		3.2.3 The Articles of Incorporation, or “Charter”
		3.2.4 The Corporate Bylaws
		3.2.5 Shareholders’ Agreements
	3.3 Limited Liability
		Frank Easterbrook & Daniel Fischel, Limited Liability and the Corporation
	3.4 Transferable Shares
	3.5 Centralized Management
		3.5.1 Legal Construction of the Board
			3.5.1.1 The Holder of Primary Management Power
				Automatic Self-Cleansing Filter Syndicate Co., Ltd. v. Cuninghame
			3.5.1.2 Structure and Function of the Board
			3.5.1.3 Formality in Board Operation
			3.5.1.4 A Critique of Boards
		3.5.2 Corporate Officers: Agents of the Corporation
			Jennings v. Pittsburgh Mercantile Co.
4. The Protection of Creditors
	4.1 Mandatory Disclosure
	4.2 Capital Regulation
		4.2.1 Financial Statements
		4.2.2 Distribution Constraints
		4.2.3 Minimum Capital and Capital Maintenance Requirements
	4.3 Standard-Based Duties
		4.3.1 Director Liability
		4.3.2 Creditor Protection: Fraudulent Transfers
		4.3.3 Shareholder Liability
			4.3.3.1 Equitable Subordination
				Costello v. Fazio
			4.3.3.2 Piercing the Corporate Veil
				Sea-Land Services, Inc. v. The Pepper Source
				Kinney Shoe Corp. v. Polan
	4.4 Veil Piercing on Behalf of Involuntary Creditors
		Walkovszky v. Carlton
5. Debt, Equity, and Economic Value
	5.1 Capital Structure
		5.1.1 Legal Character of Debt
			5.1.1.1 Maturity Date
			5.1.1.2 Tax Treatment
		5.1.2 Legal Character of Equity
			5.1.2.1 Common Stock
			5.1.2.2 Preferred Stock
	5.2 Conceptions of Value
		5.2.1 The Time Value of Money
		5.2.2 Risk and Return
		5.2.3 Diversification and Systematic Risk
	5.3 Valuing Assets
		5.3.1 The Discounted Cash Flow (DCF) Approach
		5.3.2 The Relevance of Prices in the Securities Market
	5.4 Valuation, Modern Finance Theory, and Today’s Corporate Lawyer
		5.4.1 Clients
		5.4.2 Courts
		5.4.3 Regulators
6. Normal Governance: The Voting System
	6.1 Introduction: Shareholder Voting in the New Corporate Governance
		6.1.1 Ownership Structure and the Collective Action Problem
		6.1.2 Institutional Investors and Shareholder Voting
	6.2 Electing and Removing Directors
		6.2.1 Electing Directors
		6.2.2 Removing Directors
	6.3 Shareholder Meetings and Alternatives
		6.3.1 Special Meetings
		6.3.2 Shareholder Consent Solicitations
	6.4 Proxy Voting and its Costs
		Rosenfeld v. Fairchild Engine & Airplane Corp.
	6.5 Class Voting
	6.6 Shareholder Information Rights
		6.6.1 The Stock List
		6.6.2 Inspection of Books and Records
	6.7 Techniques for Separating Control from Cash Flow Rights
		6.7.1 Circular Control Structures
			Speiser v. Baker
		6.7.2 Vote Buying
			Frank Easterbrook & Daniel Fischel, Voting in Corporate Law
			Schreiber v. Carney
		6.7.3 Controlling Minority Structures
			Lucian A. Bebchuk, Reinier Kraakman & George G. Triantis, Stock Pyramids, Cross-Ownership, and Dual Class Equity
	6.8 Voting in Today’s Corporation
		6.8.1 Proxy Advisory Firms
		6.8.2 Institutional Shareholder Activists
			Marcel Kahan & Edward B. Rock, Hedge Funds in Corporate Governance and Corporate Control
	6.9 The Federal Proxy Rules
		6.9.1 Rules 14a-1 Through 14a-7: Disclosure and Shareholder Communication
		6.9.2 Activist Investors and the Short Slate Proxy Contest
		6.9.3 Access to the Company’s Proxy Statement: Rule 14a-8: Shareholder Proposals
			6.9.3.1 Corporate Governance Proposals
			6.9.3.2 Corporate Social Responsibility Proposals
		6.9.4 Rule 14a-9: The Antifraud Rule
			Virginia Bankshares, Inc. v. Sandberg
		6.10 Fiduciary Superintendence of Shareholder Voting
			Schnell v. Chris-Craft Industries, Inc.
7. Normal Governance: The Duty of Care
	7.1 Introduction to the Duty of Care
	7.2 The Duty of Care and the Need to Mitigate Director Risk Aversion
		Gagliardi v. TriFoods International, Inc.
	7.3 Statutory Techniques for Limiting Director and Officer Risk Exposure
		7.3.1 Indemnification
			Waltuch v. Conticommodity Services, Inc.
		7.3.2 Directors and Officers Insurance
	7.4 Judicial Protection: The Business Judgment Rule
		Kamin v. American Express Co.
		7.4.1 Understanding the Business Judgment Rule
		7.4.2 The Duty of Care in Takeover Cases: A Note on Smith v. Van Gorkom
		7.4.3 Additional Statutory Protection: Authorization for Charter Provisions Waiving Liability for Due Care Violations
	7.5 The Board’s Duty to Monitor: Losses “Caused” by Board Passivity
		7.5.1 Prologue to Caremark
			Francis v. United Jersey Bank
			Graham v. Allis-Chalmers Manufacturing Co.
		7.5.2 Caremark and the Beginning of a New Era?
			In re Caremark International Inc. Derivative Litigation
		7.5.3 Caremark’s Progeny
			Marchand v. Barnhill
		7.5.4 Caremark Duties and Federal Enforcement
	7.6 “Knowing” Violations of Law
		Miller v. AT&T
8. The Duty of Loyalty: Conflict Transactions
	8.1 Duty to Whom?
		8.1.1 The Shareholder Primacy Norm
		8.1.2 Charitable Contributions
			A.P. Smith Manufacturing Co. v. Barlow
		8.1.3 Constituency Statutes
		8.1.4 A Broad Vision of Corporate Purpose Gains New Friends in High Places
			Laurence Fink, A Fundamental Reshaping of Finance (Letter to CEOs), Jan. 2020
			The Business Roundtable, Statement on the Purpose of a Corporation (Aug. 2019)
		8.1.5 Defining Corporate Purpose in the Charter: Public Benefit Corporations
	8.2 Self-Dealing Transactions
		8.2.1 The Disclosure Requirement
			State ex rel. Hayes Oyster Co. v. Keypoint Oyster Co.
			Melvin Eisenberg, Self-Interested Transactions in Corporate Law
	8.3 The Effect of Approval by a Disinterested Party
		8.3.1 Early Regulation of Fiduciary Self-Dealing
		8.3.2 Judicial Review of Self-Dealing Today: The Limited Role of Safe Harbor Statutes
			Cookies Food Products v. Lakes Warehouse
		8.3.3 Judicial Review When Transaction Has Been Approved by a Disinterested Majority of the Board
			Melvin Eisenberg, Self-Interested Transactions in Corporate Law
			Cooke v. Oolie
		8.3.4 Approval by a Minority of Directors: Special Board Committees
		8.3.5 Shareholder Ratification of Conflict Transactions
			Lewis v. Vogelstein
	8.4 Corporate Directors and the Duty of Good Faith
	8.5 Controlling Shareholders and the Fairness Standard
		8.5.1 Different Treatment for Controlling Shareholders?
			Sinclair Oil Corp. v. Levien
			Weinberger v. UOP, Inc.
		8.5.2 Approval by a Board Minority of “Independent” Directors: Special Committees
	8.6 Corporate Opportunity Doctrine
		8.6.1 Determining Which Opportunities “Belong” to the Corporation
		8.6.2 When May a Fiduciary Take a Corporate Opportunity?
	8.7 The Duty of Loyalty in Close Corporations
		Donahue v. Rodd Electrotype Co.
		Frank Easterbrook & Daniel Fischel, Close Corporations and Agency Costs
		Smith v. Atlantic Properties, Inc.
9. Executive Compensation
	9.1 Introduction
	9.2 The Challenge of Executive Pay
		9.2.1 Creating Incentives that Align the Interests of Managers and Investors
		9.2.2 Political and Regulatory Responses to Executive Pay
	9.3 Are Ceos Paid too Much?
		Lucian Bebchuk & Jesse Fried, Pay Without Performance: Overview of the Issues
		Alex Edmans, Xavier Gabaix & Dirk Jenter, Executive Compensation: A Survey of Theory and Evidence
		Bengt Holmstrom, Pay Without Performance and the Managerial Power Hypothesis: A Comment
	9.4 Judicial Review of Compensation
		9.4.1 The Law of Executive Officer Compensation
			In re The Goldman Sachs Group, Inc. Shareholder Litigation
	9.5 Judicial Review of Director Compensation
		In Re Investors Bancorp, Inc. Stockholder Litigation
10. Shareholder Lawsuits
	10.1 Distinguishing Between Direct and Derivative Claims
	10.2 Solving a Collective Action Problem: Attorneys’ Fees and the Incentive to Sue
		Fletcher v. A.J. Industries, Inc.
	10.3 Standing Requirements
	10.4 Balancing the Rights of Boards to Manage the Corporation and Shareholders’ Rights to Obtain Judicial Review
		10.4.1 The Demand Requirement of Rule 23.1
			Rales v. Blasband
			Marchand v. Barnhill
		10.4.2 Special Litigation Committees
			Zapata Corp. v. Maldonado
			Joy v. North
	10.5 Dealing with an Abundance of Shareholder Suits
		10.5.1 Exclusive Forum Bylaws
			Salzberg v. Sciabacucchi
		10.5.2 Settlement and Indemnification
			In Re Trulia, Inc. Stockholder Litigation
	10.6 When Are Derivative Suits in Shareholders’ Interests?
11. Transactions in Control
	11.1 Sales of Control Blocks: The Seller’s Duties
		11.1.1 The Regulation of Control Premia
			Zetlin v. Hanson Holdings, Inc.
			Perlman v. Feldmann
		11.1.2 A Defense of the Market Rule in Sales of Control
			Frank H. Easterbrook & Daniel R. Fischel, Corporate Control Transactions
			In re Delphi Financial Group Shareholder Litigation
	11.2 Sale of Corporate Office
	11.3 Looting
	11.4 Tender Offers: The Buyer’s Duties
		Brascan Ltd. v. Edper Equities Ltd.
	11.5 The Hart-Scott-Rodino Act Waiting Period
12. Fundamental Transactions: Mergers and Acquisitions
	12.1 Introduction
	12.2 Economic Motives for Mergers
		12.2.1 Integration as a Source of Value
		12.2.2 Other Sources of Value in Acquisitions: Tax, Agency Costs, and Diversification
		12.2.3 Suspect Motives for Mergers
		12.2.4 Do Mergers Create Value?
	12.3 The Evolution of the U.S. Corporate Law of Mergers
		12.3.1 When Mergers Were Rare
		12.3.2 The Modern Era
	12.4 The Allocation of Power in Fundamental Transactions
	12.5 Overview of Transactional Form
		12.5.1 Asset Acquisition
		12.5.2 Stock Acquisition
		12.5.3 Mergers
		12.5.4 Triangular Mergers
		12.5.5 De Facto Mergers
			Hariton v. Arco Electronics, Inc.
	12.6 Structuring the M&A Transaction
		12.6.1 Timing
		12.6.2 Regulatory Approvals, Consents, and Title Transfers
		12.6.3 Planning Around Voting and Appraisal Rights
		12.6.4 Due Diligence, Representations and Warranties, Covenants, and Indemnification
		12.6.5 Deal Protections and Termination Fees
		12.6.6 Accounting Treatment
		12.6.7 A Case Study: Excerpt from Timberjack Agreement and Plan of Merger
	12.7 The Appraisal Remedy
		12.7.1 History and Theory
		12.7.2 The Market-Out Rule
		12.7.3 The Nature and Judicial Determination of “Fair Value”
			Verition Partners Master Fund Ltd v. Aruba Networks, Inc.
			Fir Tree Value Master Fund, LP v. Jarden Corp.
		12.7.4 Quasi-Appraisal
		12.7.5 The Appraisal Alternative in Interested Mergers
	12.8 The Duty of Loyalty in Controlled Mergers
		12.8.1 Cash Mergers or Freeze-Outs
			Kahn v. Lynch Communications Systems, Inc.
		12.8.2 The “Proceduralization” of Going-Private Transactions
			In re CNX Gas Corporation Shareholders Litigation
		12.8.3 The Other Shoe Drops: One-Step Freeze-Out Mergers
			Kahn v. M&F Worldwide Corp et al.
13. Public Contests for Corporate Control
	13.1 Introduction
	13.2 Defending Against Hostile Tender Offers
		Unocal Corp. v. Mesa Petroleum Co.
	13.3 Private Law Innovation: The Poison Pill
	13.4 Choosing a Merger or Buyout Partner: Revlon, Its Sequels, and Its Prequels
		Smith v. Van Gorkom
		Revlon, Inc. v. MacAndrews and Forbes Holdings, Inc.
	13.5 Pulling Together Unocal and Revlon
		Paramount Communications, Inc. v. Time, Inc.
		Paramount Communications, Inc. v. QVC Network, Inc.
	13.6 Applying Revlon
	13.7 Regulation of Takeovers in Other Legal Systems
	13.8 Protecting the Deal
		13.8.1 “No Shops/ No Talks” and “Fiduciary Outs”
		13.8.2 Shareholder Lock-Ups
			Omnicare, Inc. v. NCS Healthcare, Inc.
	13.9 Corwin Cleansing
		Corwin v. KKR Financial Holdings LLC
		In re PLX Technology Inc. Stockholders Litigation
	13.10 State Antitakeover Statutes
		13.10.1 First-and Second-Generation Antitakeover Statutes (1968–1987)
		13.10.2 Third-Generation Antitakeover Statutes
	13.11 Proxy Contests for Corporate Control
		Blasius Industries, Inc. v. Atlas Corp.
	13.12 Deals Jurisprudence and Contractual Freedom
14. Trading in the Corporation’s Securities
	14.1 Common Law of Directors’ Duties When Trading in the Corporation’s Stock
		Goodwin v. Agassiz
	14.2 The Corporate Law of Insider Trading Post-Goodwin
	14.3 §16(b) AND RULE 16-b UNDER THE 1934 ACT
	14.4 Exchange Act §10(b) and Rule 10b-5
		14.4.1 Evolution of Private Right of Action Under §10
		14.4.2 Elements of a 10b-5 Claim
		14.4.3 Early Rule 10b-5 Insider Trading Liability: The Equal Access Theory
			SEC v. Texas Gulf Sulphur Co.
			Santa Fe Industries, Inc. v. Green
		14.4.4 The Equal Access Theory of Rule 10b-5 Liability
		14.4.5 Elements of Rule 10b-5 Liability: The Fiduciary Duty Theory
			Chiarella v. United States
		14.4.6 The Problem of Tippees after Chiarella
			Dirks v. SEC
			United States v. Newman
			Salman v. United States
		14.4.7 Note on Regulation FD
		14.4.8 The Introduction of the Misappropriation Theory
			United States v. O’Hagan
		14.4.9 Hacking and Insider Trading — A New Front in the Ongoing War?
		14.4.10 Civil Liability, Civil Fines, and Criminal Penalties for Security Fraud Violations
			Elkind v. Liggett & Myers, Inc.
	14.5 The Other Side of 10b-5: Fraud-on-the-Market Class Actions
		14.5.1 Materiality and Reliance in FOM Class Actions
			Basic Inc. v. Levinson
		14.5.2 Loss Causation in Rule 10b-5 Class Actions
		14.5.3 The Role of Class Certification in Recent Challenges to FOM Actions
	14.6 Insider Trading and FOM Class Actions: The Academic Policy Debates
		14.6.1 The Insider Trading Debate
		14.6.2 The Academic Policy Debate over FOM Class Actions
Table of Cases
Index