biz org class 20

section 11 of securities act of 1933 - materially misleading statements or omissions in a registration statement leads to liability under this section, due diligence is required. if you're a director and sued for a misleading statement that was prepared by an expert, you still are liable potentially, but you're able to rely on experts and your due diligence defense is easier to prove.

barchris.
see p. 434 problem 1: how does peat marwick's potential liability differ from that of the directors? why should it differ? directors should know what's going on at the compnay and what's in the registration statements, but if it's in the expertised portion, the due diligence burden is lower. for the unexpertised portion, they have the highest liability.

2. signs the registration agreement, and barchris does not have a defense

3. should a director who also serves as GC to the issuer be held to a different standard than the other directors? requirement of confidentiality under rule 1.6 and so GC can't disclose info as director of the company. there's internal tension.

4. how should a law firm respond from a request that a partner serve on the board of directors? potential conflict of interest

5. who was harmed by the defendant's misconduct? did anyone benefit from it? the investors were harmed.

basic v. levinson
fraud on the market theory
rebuttal presumption of reliance in securities fraud cases
rule 10(b)(5) is a section of the securities of 1933 act that is a response to the great depression

basic was having conversations with another company about an acquisition, and asked NYSE to stop trading its stock in anticipation of this merger. the company president publicly denied the merger. the next day, the merger happened. the plaintiffs brought a class action suit saying that they were injured by the freeze which created artificially reduced market prices and the reliance on misinformation given by the company president, and that the misrepresentation violated 10(b)(5). district court found that the plaintiffs were entitled to a reliance on basic's claim, but found that the argument was essentially immaterial.

the purpose of the securities act of 1933 is to protect investors against manipulation of stock prices, and 10(b)(5) is to protect against fraud. requiring a showing of actual reliance would be impossible for a class to prove. instead, to prove fraud in this case, it must show:
1. recklessness
2. standard of materiality:
a. a materially omitted fact
b. substantial likelihood that;
c. reasonable shareholder would use in deciding how to vote
3. reliance: party harmed materially relied on the manipulation, omission or misrepresentation
4. causation: the D's act caused the P's harm
5. standing: the P's have to have an actual injury in connection with purchase or sale of a security, as defined by 10(b)(5)

average investor does not have the sophistication to understand what's misleading in a market statement. what's wrong with the fraud-on-the-market theory? the idea that the


section 12 deals with the liability of any issuer or person who sells securities without registering them.

section 5

section 2(1); howey

section 4(2) - private placements/exempt transactions

commercial arbitration class 10

under a broad formulation, any issue of contract construction is arbitratble. any dispute as to conduct undertaken with respect to performance, un/lawful not/permitted, is embraced. so you have to go far to contemplate something that is not within the clause, such as a merger agreeement where the CEO of one company didn't drop off the other's laundry.

sometimes, it's hard to deal with arbitrability under a broad clause. there's a temptation to get into issues of contract interpretation and construction, such as the claim in the nationwide insurance case, where the court has to decide things on the merits, because either the contract doesn't/provides for the claim in which case it is/not arbitrable. but the court doesn't care about whether or not the issue is meritorious or that there's a claim of action. 

however, notice that even thought his is hte most practial solution, this is ianother reason that arbitrators can run amuck cause they can decide cases on things that would have been dismissed for lack of pleading a case/merits. tribunals are very careful about pre-trial motions. FINRA has a rule that arbitrator cannot throw a case out unless the wrong individual was sued!!

despite the test for a broad clause, the minute the parties attempt something like in choice hotels, to have apparently made an attempt to segregate out in the arbitration clause what is/not arbitrable, we know that broad clause approach is in conflict with the principle that parties cannot be forced to arbitrate.

how does this work out in practice?
1. maybe the clause only segregates out one item for arbitration because it would be complicated for a court (like a complicated accounting issue); the court will resort to purpose construction -- "is this the type of thing that an arbitrator (ie expert) was wanted for by the parties?"
2. maybe the court will resort to horsesense and a dictionary, like in choice hotels (difference between a debt and claim)
3.

denihan and denihan
shareholder's agreement: usually used in small corps, where there need to be agreements to thingst hat aren't necessarily covered under genral corp provisions. include provisions like first refusal, when/where money is distributed, "super majority provisions" to protect the minority shareholders. they also typically cover sale and/or assets of the company. and family corps make family members hate each other.
para 4 of the shareholder agreement between the brothers is supposed to protect the minor shareholder: can't sell or merge unless he's protected his full 25% interest in the company.
reasonable relationship test.

teradyne.
many circuits grant relief, but some don't. so if you're in this jurisdiction, even more reason to put something in the arb clause. you'll also often see getting an injunction in aid of the arbitration clause, which will overcome judicial reluctance.