BA
This is the page for Caroline Bradley’s Fall 2009 Business Associations class at the University of Miami.
NOTE ON THE EXAMINATION: I WILL NOT BE PROVIDING COPIES OF THE STATUTES LIST FOR THE EXAMINATION AND YOU MAY NOT TAKE COPIES OF THE LIST INTO THE EXAM WITH YOU.
The list I provided here is to help you focus on some of the statutes in preparing for the exam, and not material you should expect to see on Sunday morning.
If you have questions you want to ask me by email and send the to me by about 5pm Saturday I will try to answer them.
Good luck.
Class Handouts
Syllabus
Littleton v McNeely (8th Cir. 2009)
Notes on the Capital Problem
Laborers’ Pension Fund v. Lay-Com, Inc (7th Cir. 2009)
selected provisions from the Florida LLC statute
R&R Capital, LLC v. Merritt (Del. Ch. 2009)
Zrii v Wellness Acquisition Group (Del. Ch. 2009).
Gantler v Stephens (Del. 2009).
Statutes List for the Examination
Please also note the archive page.
List of Questions for Review
I will post here questions people want to review at the review sessions:
1. BJR and entire fairness
2. Zahn v Transamerica
3. when are directors’ duties owed to shareholders?
4. the test for a security
5. Liability in an LLP
6. Instances when the Business Judgment Rule is displaced
7. Under-capitalization rationale for veil piercing
8. Are we responsible for the time frames discussed in the various statutes
9. Review of Default Rules in UPA/RUPA which ones can be contracted around
10. Whether there is a difference between apparent authority and apparent agency. Miller v. McDonald seemed to suggest there was one.
11. Is Zapata limited to situations in which demand was excused, or do DE courts apply the 2-part test in cases where the demand was made and rejected?
12. Is there an actionable duty of good faith (independent of the duties of loyalty and care) after Stone?
13. enterprise liability; differences between enterprise and veil piercing, reverse veil piercing.
WEEK 14: November 16-20, 2009
On Tuesday we’ll start with the problems on pages 470-1. For the rest of the week please read to page 520 (this includes short sections on short swing profits and indemnification and insurance, but I’m more concerned to cover the insider trading material than the rest). O’Hagan suggests that disclosing an intent to trade to the information source will protect a person from being liable as a misappropriator, but this is not necessarily the case. In SEC v Rocklage (1st Cir. 2006) the Court said that an announcement of an intention to pass information on after it was received did not prevent the acquisition of the information from being deceptive:
On December 31, 2001, Mr. Rocklage learned that one of the company’s key drugs had failed its clinical trial. That afternoon, he phoned Mrs. Rocklage to discuss the trial results and he reached her while she was in a limousine. Before discussing the results with her, Mr. Rocklage made clear his intention that the results be kept confidential. He told her that she was not to react to what he was about to say, and he instructed her not to discuss the results in front of the limousine driver. She agreed. From the time that Mr. Rocklage joined Cubist in 1994, he had routinely communicated material, nonpublic information to his wife, and she had always kept the information confidential. Based on Mrs. Rocklage’s agreement, and based on their prior history of sharing nonpublic information about the company and her keeping that information confidential, Mr. Rocklage had a reasonable expectation that she would not disclose the trial results to anyone. Based on his understanding that she would keep the information confidential, Mr. Rocklage informed his wife that the clinical trial had failed. Before the results were
disclosed to her, Mrs. Rocklage understood her husband’s expectation of confidentiality….Unbeknownst to her husband, Mrs. Rocklage had a preexisting understanding with her brother, defendant Beaver, that she would inform him with “a wink and a nod” if she learned significant negative news about Cubist. At the time that Mrs. Rocklage learned the negative trial results, she knew or had reason to believe that Beaver owned Cubist stock. She also knew or had reason to know her brother would
trade in Cubist securities if she disclosed the nonpublic information to him… After that conversation, and on or about the evening of December 31, 2001, Mrs. Rocklage informed her husband that she planned to signal her brother to sell his stock. Mr. Rocklage urged her not to do so, and he expressed his displeasure at the idea. Nevertheless, sometime before the morning of January 2, 2002, Mrs. Rocklage called Beaver and gave him “a wink and a nod” regarding Cubist…. In light of her disclosure to her husband, Mrs. Rocklage’s mechanism for “distributing” the information to her brother may or may not have been rendered non-deceptive by her stated intention to tip. But because of the way in which Mrs. Rocklage first acquired this information, her overall scheme was still deceptive: it had as part of it at least one deceptive device. Thus as a matter of the facts alleged in the complaint, and taking all facts and inferences in favor of the plaintiff, a § 10(b) claim is stated. The defendants (the wife, her brother, and the brother’s friend) agreed to settle the charges.
The Galleon insider trading enforcement action involves information from employees of issuers, from an analyst at Moody’s, a rating agency, from an employee of a consulting firm that did investor relations work for issuers, from a company in which Galleon invested and to which it appointed a director, and from an executive of one corporation who obtained information about a company it was proposing to acquire during the due diligence process.
Note on themes of the class:
We began the semester with some thoughts about trust (or lack of trust) in business. Do you have different views about the following statement you read at the beginning of the semester after the reading you have done in this class?:
Restoring public trust in business also requires businesses to operate more in the public interest (mutuality) and build symbiotic relationships with stakeholders (balance of power). It requires greater transparency and accountability by business with key enhanced roles here for the Board of Directors, while restoring trust in our financial services firms also demands greater transparency and accountability by those official regulators of these firms.
I have drafted and posted here a Statutes List for the Examination. Please note that it incorporates this document (although we spent more time in class on some of these provisions than on others).
November 18: The SEC announced that it was charging two executives of Tvia Inc (which is currently in chapter 11) for improperly inflating the corporation’s reported financial results:
The SEC alleges that Tvia’s former Vice President of Worldwide Sales, Benjamin Silva III of Fremont, Calif., made side deals with customers and concealed the terms from Tvia’s executives and auditors, which fraudulently caused the company to report millions of dollars in excess revenue…..
The SEC’s complaint, filed in federal district court in San Jose, alleges that Silva’s side agreements illegally inflated Tvia’s revenue by approximately $5 million from September 2005 through June 2006. This caused the company’s quarterly revenue to be consistently overstated, including by as much as 165 percent in one quarter. The SEC further alleges that in order to divert auditors’ attention from delinquent customer payments, Silva fraudulently applied payments from new customers to old receivables.
According to the SEC’s complaint, Silva’s misconduct allowed him to meet his revenue targets at the company. For his efforts in meeting those targets, Silva received an award of options to buy 70,000 shares of Tvia stock. Before the fraud was discovered in early 2007, Silva exercised and sold all of his available Tvia options for a profit of $300,000.
The SEC’s complaint against Silva charges him with violations of the antifraud, reporting, books and records and internal control provisions of the federal securities laws, and seeks a permanent injunction, disgorgement of Silva’s ill-gotten gains plus prejudgment interest, and a financial penalty. The SEC also seeks a court order permanently barring Silva from acting as an officer or director of any public issuer.
In March 2009 Tvia made a Regulation FD disclosure of materials to be presented in connection with proposed sales of the corporation’s assets.
Also note a useful post by Elizabeth Nowicki on Concurring Opinions about the overhearing of information and Bruce Carton’s hypothetical based on twitter at compliance week.
WEEK 13: November 9-13, 2009
We will have review sessions on Tuesday November 24th (this is our last regularly scheduled class session) from 2-3.30pm in F109 and Tuesday December 1st from 2-3.30pm in F108 (note the different room). Attendance is optional. I’m also happy to answer questions by email or in person.
Next week we will continue with the securities regulation material. We’ll cover Escott v BarChris reasonably quickly and look at the hypo on page 435. Please also read Basic v Levinson and the questions and problem for Tuesday (ie up to page 451). Please read to page 471 for Wednesday and 490 for Thursday.
There’s a large enforcement action going on right now involving an alleged insider trading ring around Galleon Management LP and Raj Rajaratnam (the SEC has a nice chart showing the relationships) and the SEC is also taking action against some lawyers.
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