Business Associations, Cases and Materials on Agency, Partnerships, LLCs, and Corporations

Stephen M. Bainbridge, University of California-L.A. School of Law

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Author’s Notes Regarding the Changes in New Edition:

Chapter 1
 

• In Section 2.A, Ackerman v. Sobol Family Partnerships has been extensively edited for length.
• In Section 3.A, Murphy v. Holiday Inns, Inc., page 52, has been deleted and replaced with Kerl v. Rasmussen. It has long been my view that franchising and agency law do not fit well together, which is a point explicitly made by the newly added Kerl v. Rasmussen decision. In this edition, I nevertheless retained Humble Oil and Sun Oil. I will be on the lookout for cases to replace Humble Oil and Sun Oil in future editions, but welcome feedback and suggestions from adopters.
• A set of problems has been added at the end of Section 3.A.
• In Section 3.B, the questions following Miller v. McDonald’s Corp. have been reworked to tie into the critique begun in the Kerl case of using agency law in franchising situations.
• In what is now Section 3.C, a problem has been added following Bushey. The notes and questions following Bushey have been substantially reworked and expanded. As a result, Manning v. Grimsly has been deleted.
• Former Section 3.D has been moved to the end of the section.
• In Section 4, Reading v. Regem and Rash v. J.V. Intermediate, Ltd., were slightly edited for length. The antiquated discussion of housewives and housework in Town & Country House & Home Service, Inc. v. Newberry has been deleted as unnecessary and potentially offensive to modern sensibilities. Two new analysis questions were added to Town & Country.

Chapter 3
 

• Section 1 has been substantially revised. New introductory text on the nature and formation of the corporation has been added. The materials on corporate promoters have a new introduction. VantagePoint Venture Partners 1996 v. Examen, Inc. has been added to introduce Delaware’s dominance and the internal affairs doctrine.
• I have debated for some time adding a section on legal capital and dividends to this Chapter. After all, dividends come up at several points (e.g., Dodge and Kamin), but Klein and Ramseyer consistently vetoed doing so on grounds that it would involve a lot of text and be quite boring, both of which are true. For now, I will make a supplement covering those topics available online. I would welcome input from adopters as to including it in the next edition.

Chapter 4
 

• The material on exculpation in Section 1 (following Smith v. Van Gorkom) has been updated to include the 2022 amendments to DGCL § 102(b)(7) and slightly expanded.
• In Section 1, Francis v. United Jersey Bank was moved to Section 3.B (which has been retitled Directors Duty to be Informed). Francis is really a case about the directors’ duty of oversight. What is the bare minimum level of supervisory attention we expect of directors, which then segues nicely into Caremark’s progeny. The health spa problem has been moved to Chapter 3.3. The truck company problem was moved to Chapter 4.3.B, following Stone.
• In Section 2 (Duty of Loyalty), the cases in former Subsection D (Ratification) relate to shareholder ratification of conflicted director and officer transactions. They do not speak to ratification of conflicted controller transactions. Former Section D has been renumbered as C.
• In former Section 4.B, Grimes v. Donald and its accompanying Analysis questions have been replaced by UFCW v. Zuckerberg and a revised set of Analysis questions.
• Former Section 4.D has been deleted as Zuckerberg contains a useful discussion of director independence. The problems on director independence in former Section 4.D have been moved to follow Zuckerberg.
• In former Section 4.D, Marx v. Akers has been deleted. Teaching it after working through Zuckerberg, the notes and questions thereafter, and the problems on independence proved repetitive and tedious.
• Former Section 4.E on derivative suit aspects of oversight cases has also been deleted as redundant in light of Zuckerberg’s merger of Rales and Aronson. A note on oversight cases follows Zuckerberg.
• Former Section 5 (Disclosure and Fairness) has been deleted. It constituted over six percent of the text, but surveys of our adopters indicated that almost no one taught it. Many of the cases were old and virtually unteachable. The section didn’t even scratch the surface of a hugely complex body of law.
• In section 6, Goodwin v. Agassiz was deleted. State law has been so thoroughly superseded by federal law that there was very little point in teaching the case. It was mainly useful as an introduction to materiality, but TGS handles that job equally well. By the way, I seriously considered deleting TGS as seriously out of date and replacing it with Chiarella. I decided to keep it one more edition, but unless there is considerable protest from adopters TGS is on the chopping block for the 13th edition.
• Also in Section 6, the discussion of Rule 10b5-1 was expanded to reflect recent amendments. In addition, a new problem was added to the end of the section.
• The section on indemnification was moved to precede the section on shareholder derivative suits. I don’t see how you can teach demand futility without talking about exculpation and indemnification. To be sure, there is a bit of chicken and an egg problem in that DGCL § 145 on indemnification distinguishes between direct and derivative suits. But many students have a very hard time grasping the procedural problems associated with derivative litigation. Explaining how indemnification affects the incentives of both defendants and plaintiff counsel helps them get it.

Chapter 5
 

• The order of Sections 1 (proxies) and 2 (state law re voting) have been reversed. It has always made more sense to me to tackle state voting rights before getting into the federal proxy rules.
• The material on federal regulation of proxies has been expanded.
• Shareholder inspection rights has been split out and promoted to a major section as new Section 3. My logic for doing so is that those rights are used not just in proxy contests but also in many other settings. The sections that follow have been renumbered accordingly.
• Ingle v. Glamore Motor Sales, Inc., was moved to follow Smith v. Atlantic Properties. I teach all of the Massachusetts cases and then follow them with Ingle and the note on Nixon v. Blackwell as alternatives to the Massachusetts approach.
• Stuparich v. Harbor Furniture Mfg., Inc., was deleted. In my view, it adds too little to the material on dissolution to justify its length.
• The problems of dominant shareholders are problems in control. Accordingly, I added a new section 4¬—“Controlling Shareholders”—to this Chapter. I then moved the section on dominant shareholders (4.2.C) to this new section. Because the materials on transfers of control at the end of Chapter 5 do not rely on the special status of close corporations, those cases have been moved to this new section as well. Frandsen was moved to the end of the new section. It is, after all, the contractual solution to the problem of transfers of control. Logically, one should have studied those transfers before studying the solution.
• In Section 6, I reluctantly retained Jordan v. Duff & Phelps, Inc., which case survived in the book for many editions because my former coauthors liked it due to what they saw as its alleged “brainteaser quality” and “the amusing interchange between two judges who most students will assume always agree.” They placed the case here in the casebook because it combines Rule 10b-5 issues with questions about the fiduciary duties a majority shareholder owes the minority. I seriously doubt whether current students are as familiar with Posner and Easterbrook as was the case back in the 1980s. I also find the case quite tedious and I therefore skip it. If you decide to teach it, be aware that it is a hard case; be prepared for confused students. If you want to continue teaching it, please let me know, because it is high on my list for deletion in the next edition.

Chapter 6
 

• Section 1 has been reorganized for flow. In response to multiple adopter requests, I added some introductory materials on the plumbing of corporate takeovers.
• Because Match Group was added to Chapter 4, MFW was substantially shortened to avoid unnecessary duplication.
• Section 2.A was deleted. Cheff v. Mathes was hopelessly outdated. The note on greenmail was moved to follow Unocal.
• In Section 2.D, Hilton Hotels and the material that follows were deleted. It was replaced by Coster v. UIP Companies, Inc., --- A.3d ---- (Del.2023),

Chapter 7
 

• Section 2. Sharon Steel was edited to add discussion of the redemption premium issue.

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