biz org class 13

recap.

in re ebay:
- corporate opportunity doc
* corp is financially able
* line of biz
* interests, expectancy, necessity
* conflict of interest situation

in the ebay case, one of the issues raised was the fact that a court considered that investing in considerable securities was a part of ebay's business. the company is not in the biz of investing in other company's biz. but if investing in securities is part of its biz, then every opportunity is a (something) opportunity because every company invests in other companies. but the court spent some time in discussing that ebay may be unique because it invests a large part of assets and operations in securities of other companies: this is "unusual"

dominant shareholders -- sinven v. levien
sinclair is a company that operates country specific subsidiaries ("international") and has 97% interest in sinven in venezuela. sinven minority shareholder has brought complaint against sinclair for
- allowed its wholly-owned sub to breach contracts entered into with sinven
- sinclair caused sinven to issue excessive dividends
- sinclair usurped sinven's corporate opportunities

the contracts between the parent and subsidiary: what needs to be asked in the analysis?
1. is there a fiduciary duty?
2. did sinclair violate the fiduciary duty owed to sinven minority shareholders?
3. does the intrinsic fairness test apply? has the fiduciary duty owed by the dominant shareholders to the minority shareholders been breached?
4. keep in mind that this is a duty of loyalty issue
5. in determining if sinclair breached its duty, we need to know what triggers the intrinsic fairness test -- self-dealing

are the dominant shareholders self-dealing in their interests and interactions with the minority shareholder
-- does the controlling shareholder receive something at the expense of/ to the detriment of the minority shareholders?
-- any fiduciary duty that the majority shareholders owe are different than those of the officers and directors: officers and directors owe a duty of care, whereas controlling shareholders done. officers and directors also owe a duty of loyalty but it's a different duty.
-- officers manage day to day. directors make strategic decisions. shareholders don't owe the same duties because they are pursuing their personal economic interests.

sinclair controls sinven and as controlling shareholder, it may act as its own economic interest but not at the expense of the minority shareholder. plaintiffs allege that sinven has been harmed (derivative action), because of the way sinclair has controlled its subsidiaries.

the plaintiff won the first allegation:
-- self dealing. since sinclair is a wholly owned sub, there's the benefit for sinclair to benefit the sub but sinclair alone benefits from sinclair deals

second allegation: excessive dividends
-- did sinclair breach its duty with regards to the dividends? NO, all shareholders were treated equally

if sinven had excessive dividends, who benefitted? everyone got their proportionate share, so the self-dealing question is answered in the negative -- did sinclair get something at the minority shareholder's expense? NO

no biz opportunity in sinven for the venezuela oil deal. sinclair can do biz through country specific subsidiaries. sinclair can make decisions about where/when the subsidiaries should get in. that's their right under business judgment rule. the court agreed that sinven didn't have any opportunities in venezuela, and therefore none that were sinven's corporate opportunity.

how could the plaintiffs have avoided this problem?
how could sinclair have avoided this problem? only let directors who are independent make decisions about sinclair international. it may have taken care of the breach of contracts issue. but what else could be done? could have avoided suits by minority shareholders by owning 100% of all the companies that operated under it. it could have gone private and then just not had any of this issue.



DE corp code s. 144 and s.713
in conflict of interest between director and corp and officer, it's a direct (something)
only a conflict of interest if *self-dealing*


different rights are given to different classes of shareholders.



common v. preferred stocks. divisions of equity.
common - any kind of corp stock that participates in profits after the preferred receive their div's and are last in line in rights when company is dissolved. get voting rights because they are junior stakeholders.
preferred - paid before common shareholders, but don't have voting rights because they are paid dividends or liquidation first.

N.B -- bondholders, creditors, and note holders are corp creditors that get paid first because you are a *debtholder*

conversion: a class of stock can convert (exchange a convertible security) to another class, in accordance to whatever terms are set when the convertible stock is issued. conversion is managed at the discretion of the shareholder.

redemption: act of repurchasing shares of the corporation. redemption occurs at the corporation's discretion.


zahn v. transamerica
axon-fisher has 3 classes of stock A B (common) and preferred, with three sets of rights. previously, there had just been common and preferred stock, but then axon-fisher made the old common stock Class B, created a new Class A stock, and held the preferred. the Class A was given rights above the Class B stock. axon-fisher has the right to redeem class A shares. the class A stock is a type of preferred stock.

transamerica's mistake was to withhold the information about the value of the tobacco from the Class A shareholders, because the disclosure explained a significant difference in the price and the Class A power in the company. essentially, once the company started doing well and the Class B shares were worth $60 plus, the Class A shareholders lost their preferential treatment because the company wasn't doing poorly anymore. the Class A disappeared because axon-fisher called for redemption of the Class A and dissolved Class A and B into common.