The Case of the Director Who Wore Too Many Hats Arnold is one of 5 directors of Beta Investments Corporation. He is also a majority shareholder holding both common and preferred stock. His stock with voting rights amounts to 47% of all stock issued with voting rights. Arnold buys, for $1,500, an option to purchase a tract of real estate called Blackacre, which is next to Beta’s home office, for $50,000. Arnold forms a new corporation, Commercial Property, Inc., to hold the option. He then has Commercial Property buy Blackacre. As a director of Beta, Arnold orders Beta to authorize its real estate agent to negotiate the purchase of the land from Commercial Property for $100,000. After a successful negotiation for the purchase of Blackacre for $100,000, Arnold has Commercial Property sell it to Beta, and loan the money to Beta for the purchase price at a 5% interest rate which is 2% below the market rate. Diana, a minority shareholder in Beta, formally complains to Beta’s board which takes no action. Diana files a suit against Arnold. The Trial Diana files a suit against Arnold on Beta’s behalf seeking to cancel the sale. Arnold asks the Court to dismiss the lawsuit as Diana has no standing to bring the lawsuit. Arguments At Trial Arnold’s attorney argues that Blackacre is necessary for Beta as it will allow them to expand their offices and production plant thus increasing the net worth and potential profits to the shareholders. Further, the Board of Directors of Beta authorized the purchase which appeared to be in accordance with the Articles of Incorporation. Diana’s attorney argues that the purchase of Blackacre should have been put to a vote of the shareholders of Beta as required by Beta’s Bylaws. Beta’s Board of Directors failed in its duty to make sure this sale was in the corporation’s best interest. Questions to Decide 1. What kind of suit will Diana file and what is its basis? 2. Who are the Plaintiffs and who are the Defendants? Why? 3. What are the defenses, if any, of Beta or Arnold? 4. Who will win the case and why? In the semester there will be posted on the Discussion Board a fact scenario that relates to the material in the textbook and the lectures. A series of questions will be posted with this scenario. Each student who participates in this discussion can receive up to 15 points per scenario for the answers and 5 points for the response. Participation is defined as posting one’s comments or answers to the questions in the assigned forum and responding in any forum. Have a discussion please. If you wish to respond in a different forum, you’ll first have to post a short introduction and then you can see the threads in that forum. “Yes” or “No” or “I agree” is not an answer nor is it a response. I’m looking for developed answers that include an analysis of the scenario in relationship to the content of the textbook. A response is a comment to someone so please indicate whose post you are responding to and develop your answer. I don’t know the context for your response if I don’t know who, by name, you are responding to. The statement, “I agree with you”, doesn’t tell me who as all I see is a string of names. There must be at least one reference to chapter/page/lecture note in a student’s discussion. If a student chooses not to participate, no points will be received. Minimal participation will yield partial points. You may find that some student(s) who posted prior to you may have covered the points you wanted to cover. Explore the material to see if there isn’t something additional to add or a new perspective. Perhaps you can explore the “opposition” side. I’m looking for analysis using the scenario facts and the materials in the text and online – there is no right or wrong answer – it’s how you discuss and support your position that’s critical. However, an incorrect application of the material, e.g., a tort concept in a breach of contract action without adequate support will result in some point deductions. Remember, there are always different ways of looking at things – You say goodbye and I say hello. There is a certain amount of vagueness in the facts of each scenario to allow for different perspectives.
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