Meehan v. Shaughnessy
Partnership Dissolution
Facts
Issue
Rule
Poore v. Fox Hollow Enterprise
Characteristics of an LLC
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Issue:
Rule
Stanley J. How v. Boss
Premature Commencement
Facts:
The Δ promoter entered a K with the : Corporations, as a separate entity, must be represented by counsel. Partnerships can represent themselves. This court finds that the LLC must have counsel therefore it is more like a corporation in this sense. Can an LLC represent itself or must it have counsel? An answer to a complaint filed by an individual, not an attorney, on behalf of an LLC: 1) An attorney does not have to inform his partners prior to setting up new firm but must inform if asked directly by another partner (fiduciary duty). 2) You can take clients with you but you must inform the client of the choice to stay with the old firm. 3) Covenants not to compete are completely unenforceable against lawyers the client has the choice to counsel.: 1) Does a parting law partner have to inform his partnership that he is leaving before taking action? 2) Can you take partnership clients with you? 3) Are covenant not to compete ok for lawyers?: Two partners in a law firm start new firm and take other employees and clients from their old law firm. п for architectural services prior to the formation of the corporation. Incorporation never took place and the Δ ceased making payments to the п.
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Bartle v. Home Owners Coop.
Piercing the Corporate Veil – the most difficult
General rule is that the promoter is personally liable unless otherwise intended (the court says this applies here). Three alternatives exists: 1) revocable offer – party is making a revocable offer (no K exists = no liability) 2) irrevocable offer – for limited time with consideration of a promise to use best efforts to convince the corporation to agree to the K (no liability) 3) Novation – a party agrees to a K with an express agreement that a 3rd party may be substituted as a party to the KΔ oriented test
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Fletcher v. Atex
Piercing the Corporate Veil
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Issue:
Rule:
“Single economic unit” – look for
A
Cargill v. Hedge
“Reverse Piercing”
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Issue:
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SEC v. Ralston Purina
Public Offerings
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Gottfried v. Gottfried
Distributions in Closely Held Corporations
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Issue:
Rule
McQuade v. Stoneham
Traditional Roles of Shareholders & Directors
Facts:
: Dividends are generally discretionary but a corporation with an adequate surplus available may not withhold the payment of dividends in bad faith. Can a close corporation be compelled to pay dividends? Class A and common stock were issued. Class A had a right to receive a dividend before the common stock dividends were paid. The minority common stock owners claimed that the Δ paid themselves excessive salaries and made corporate loans to themselves. They claim bad faith and want to compel the close corporation to pay dividends. The Securities Acts were designed to protect the investors by promoting full disclosure of information to facilitate informed investment decisions. Therefore, the applicability of the exemption is based on the investors need for the protection. Secretaries have no access to necessary information to make informed choices about investment and thus unless the offering is made to only the highest-ranking employees the offering is considered public and is not covered by the exemption.Does an offering to key employees constitute a public offering? Δ claims that stock offering qualified under a §4.2 exemption “transaction by an issuer not involving any public offering” because they only offered to “key employees” (the employees were basically anyone who they were not firing). Reverse piercing is allowed in only the most limited circumstances to avoid debtors abusing the process and defrauding creditors. Here the identity of the family and the corporation was one in the same. No rent was paid to the corporation for the home and few formalities of the corporate form were adhered to.Is it possible to “reverse” pierce the corporate veil? The family farm had been incorporated. The corporation had a judgment creditor and stood to lose their home because it was a corporate asset. The family sought to pierce the corporate veil in order to qualify for the homestead exemption. ) Undercapitalization B) Proper behavior of the officers and directors – all formalities were used C) Siphoning of funds – centralized cash management (all $ kept w/ Kodak) is ok D) Amount of the affairs handled by the parent – majority S/H c/b involved in general executive responsibilities (i.e. approval of real estate leases & major capital expenditures)Must prove 1) “operated as a single economic unit” 2) “overall element of injustice or unfairness is present” (not necessarily fraud) What is necessary to prove an alter ego claim?п has carpal tunnel syndrome and attempt to pierce the corporate veil to recover damages from Kodak the parent company. The п questions several practices of the parent sub relationship claiming that the sub is merely an alter ego.To pierce the corporate veil there must be evidence of fraud, misrepresentation and reliance on the fraud. (the court said that this questionable deal was ok.)What is the test to pierce the corporate veil?П can establish bad faith if can show àIntense hostility, high salaries, bonuses and corporate loans made to the majority, higher tax bracket majority, and a desire, by the majority, to acquire the minority stock at a cheap price. This is difficult to prove because of the business judgment rule. The court found no bad faith because the dividends had regularly been paid on the preferred stock and during the trial they paid on the common (good faith effort) à problem with forcing is how to continue.п wants to be reinstated as the Treasurer of the NY Giants. He relies on an agreement by the S/H to use best efforts to keep him and others as officers and pay them certain salaries. The Δ’s claim that the K is void for public policy.
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Salgo v. Mathews
Shareholder Voting Rights
Facts
Issue:
Rule
NOTES
Lerhman v. Cohen
Shareholder Voting Agreements
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Issue:
Rule
Separation of ownership from control
Irrevocable for a period of time
The only reason for the agreement is control
Lee v. Jenkins Bros.
Modern Remedies for Oppression, Dissension & Deadlock
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Issue:
Rule
NOTES: This is a good example of inherent authority that comes with the title given to the person. Some factors to consider are; the nature of the K, how high the officer is in the company, are they usually allowed to do whatever it is, and the size of the corporation.
Petition of Caplan
Transactions in Controlling Shares
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Issue:
Rule
In Re Caremark Intern. Inc. Derivative Litigation
Duty & Care and the Business Judgment Rule
Facts:
Issue:
Rule
NOTES: This case took place during the settlement phase of the case and Caremark had offered to promise not to do it again. The court said that the chances of winning any money was low and therefore the promise should be enough.
Marciano v. Nakash
Self-Dealing – Intrinsic Fairness Test
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Issue:
Rule
Quorum issue is not an issue – interested party can be at the meeting and can be counted toward a quorum
Full disclosure is critical
NOTES: Missouri § 351.327 is EXACTLY the same as the Delaware statute.
The court is still entitled to look at the transaction, because the statutory self-dealing
provisions are no
g trust?The C & L families owned equal voting power the corporation each owning different types of stock (AL &AC). Each elected 2 directors to the four man board. The C decided to issue a new type of stock (1 share AD) that would be able to elect a 5th director in the event of a voting deadlock. L sued after a series of event found the lawyer who owned the AD stock in the 5th director then president etc.. L claims that the this was an illegal voting trust and should be void because the only power the stock had was voting.: It is the record ownership that counts not the beneficial owner. Does the company need to look at the beneficial owner or the record owner? Yes, the court refuses to enforce the agreement because choosing the officers of a corporation is the duty and power of the board of directors not the S/H. A K for the election of directors is ok because that is the job of the S/H. : Two factions fighting for control there were 29,000 votes in the name of Pioneer Casualty, but the shares had been sold to Shepherd. Both Shepherd and PC were in bankruptcy, and needed the approval of the bankruptcy court to vote them. The shares were transferred into Shepherd’s name. He’s the “beneficial owner”, but he’s not the record owner.: Vote Inspector – usually general counsel of the company who decides which votes to count, which ones to throw out, and then counts the votes and decides who won.
Missouri Law – Voting Inspectors are not allowed, unless the bylaws of the
company call for a voting inspector. The statute includes an inspector’s oath that must be signed by the voting inspector.
It’s possible for LOTS of shares in a company to be recorded under “street names”. In such situations, the beneficial owners of the shares do get to vote, but they do so through the owner of the street name.
: This court says that in a deadlock situation, it was impossible for the Nakash’s to get statutory approval and the transaction itself was inherently fair to the corporation. The statute just doesn’t apply.: Harris is president of the Golf Club. The Golf Club is not in the real estate business. Harris buys up property surrounding the Golf Club and begins to develop them. Harris DID tell the Golf Club board about her activities, but no one complains until she starts to successfully develop the properties. Key fact: Property where Gilpin said, “You’re the president of the Club and wouldn’t you like this adjacent property.” Harris tries to defend using the “Club couldn’t have afforded it” argument, but the court pretty well summarily dismisses that defense. Court applies the ALI test to examine Harris’ behavior.Is a K between shareholders to elect certain officers and pay certain salaries void for public policy?Home Owners Coop. set up Westerlea to build homes. The corporation was not set up to make a profit and therefore had no $ to carry it through down cycles. Bartle is the bankruptcy trustee for Westerlea and is attempting to pierce the corporate veil in order to have Home Owners pay the debt of Westerlea. What is the liability of a corporate promoter?
