Chapter 9: duty of loyalty

Question 1

duty of loyalty

Answer 1

company’s interest > personal gains
- no competition with comp
- no conflict of interest
- no misuse of corpo property
- no appropriation of business opportunities

Question 2

breach of DOL

Answer 2

zero sum (direct harm), non-zero sum (both benefit), indirect (family)

Question 3

regulate conflict

Answer 3

total prohibition
no regulation
balance approach (safeguards + indep approval with full info)

Question 4

DGCL 144

Answer 4

(1) transaction with conflict of interest not automatically void or voidable if one condition is met:
- approval by disinterested director
- approval by SH
- transaction entirely fair at approval
(2) conflicted director can still be counted for quorum and attend discussion

Question 5

fairness

Answer 5

fair dealing and fair price

Question 6

Art. 2391 ICC

Answer 6

• director must disclose interest (if sole -> disclose to SH) (if executive power -> abstain from decision)
• can be challenge (90 days) if missing motivation or vote pass due to conflicted director
• fully informed director cant challenge resolution
• third parties always protected
• director are liable for harm

Question 7

lewis vs. SLE

Answer 7

below mkt trend -> devaluate SLE shares
burden to proof to defendant (conflict of interest) -> NY business corpo law
benefit from transaction -> BJR overcame
no effort to assess fair rent

Question 8

failure to act loyally

Answer 8

fall out of typical statutory conflict rules -> business opportunity doctrine

Question 9

business opportunity doctrine

Answer 9

1. how opportunity came to attention -> lagarde test (would corpo pursue opportunity?)
2. is the opportunity related to business operation -> line of business test (comp corpo purpose = insufficient)

Question 10

director serving on multiple board

Answer 10

diclose to all -> rescue itself
empirical: common in private and involve direct competition

Question 11

Art. 2391 bis ICC

Answer 11

related parties = controlling/controlled entities, executive and their families.
relevant transaction >5% of equity -> board approval:
- fully engaged
- opinion on fairness and company interest
- if goes against -> SH approval needed