This document summarizes key topics in business law including corporations, shareholder derivative litigation, the business judgment rule, Sarbanes-Oxley, Dodd-Frank, agency law, contracts, and risk allocation in contractual indemnity. It discusses concepts like demand and demand futility in shareholder litigation, fiduciary duties and the presumption of the business judgment rule, whistleblower protections, agency relationships and duties of principals and agents, contract formation and validity, and allocation of defense and indemnity obligations.

1. MANAGEMENT 961
BUSINESS LAW
2015
Session 2

2. CORPORATIONS
 Shareholder Derivative Litigation
 Suit By Shareholder on Behalf of Company
 Requires Demand or Demand Futility
 Demand
 Wrong Done and Complaint Made to Board
 Board Fails to Act
 Demand Futility
 Doubt Regarding Whether Directors are Disinterested
and Independent, or
 Doubt the Challenged Action/Inaction Was Product of
Valid Exercise of Business Judgment
2

3. CORPORATIONS
 In Re The Walt Disney Company
 Fiduciary Duties
 Business Judgment Rule
 A presumption that “in making a business decision
the directors of a corporation acted on an informed
basis . . . and in the honest belief that the action
taken was in the best interest of the company [and its
shareholders].”
 Presumption applies when no evidence of “fraud, bad
faith, or self-dealing”
 Board’s decision upheld unless can’t be “attributed to
any rational business purpose.”
 Presumption rebutted by evidence of breach of
fiduciary duty, after which director must demonstrate
transaction “entirely fair”
 Not ordinarily apply where board inaction
 Rarely overcome
3

4. SARBANES-OXLEY
 Applies to Public Companies
 Special Accounting Rules
 Restricts Use of Advisors Who Audit (or Auditors
Who Advise)
 Enhanced Criminal Provisions
 Destruction, Alteration and Falsification of Records
 Longer Statute of Limitations for Securities Fraud
 Executive Comp Rules
 Clawbacks
4

5. SARBANES-OXLEY
 Employee Protections
 Civil Remedy – Section 806
 “No [public] company . . . or any officer, employee,
contractor, subcontractor, or agent of such company,
may discharge, demote, suspend, threaten, harass, or
in any manner discriminate against an employee”
 For Providing or Causing to Be Provided:
 Information the employee “reasonably believes” is wire
fraud, bank fraud, mail fraud, securities fraud, or
securities violation
 To federal law enforcement, member of Congress or a
Congressional committee, or “any person with
supervisory authority over the employee (or such
other person . . . who has authority to investigate,
discover, or terminate misconduct)”
 For Filing a Claim, Testifying in or Assisting a
Proceeding Related to Fraud or Securities Violations 5

6. SARBANES-OXLEY
 Employee Protections
 Civil Remedy – Section 806
 Actual and Compensatory Damages
 Criminal Penalties – Section 1107
 “knowingly, with the intent to retaliate, takes any
action harmful to any person . . . For providing to a
law enforcement officer any truthful information
relating to the commission or possible commission
of any Federal offense. . .”
 Fine and Prison
6

7. DODD-FRANK ACT
 Passed in 2010
 Creates Reward System for Whistleblowing to
SEC
 Circumvents Company Reporting Procedures
7

8. AGENCY
 Agency Relationship Formed
 By Agreement
 By Ratification
 By Estoppel
 By Operation of Law
8

9. AGENCY
 Agent as Fiduciary
 Employee
 Work for Hire
 Independent Contractors & Third Parties
 Nature of Work
 Contract Language
 Exercise of Authority
9

10. AGENCY
 Duties and Rights of Agents
 Duties:
 Good faith performance
 Notification and reporting
 Loyalty
 Obedience
 Accounting
 Rights:
 Compensation
 Accounting
 No specific performance if no contract
10

11. AGENCY
 Duties and Rights of Principal
 Duties:
 Compensation
 Cooperation
 Working conditions
 Rights and Remedies:
 Constructive trust
 Avoidance
 Indemnification
11

12. CONTRACTS
• Agreement
– Offer
– Acceptance
• Consideration
• Capacity
• Legality
12

13. CONTRACTS
 Objective Theory
 Parol Evidence Rule
 Plain Meaning
 Resolution of ambiguities
 Statute of Frauds
13

14. CONTRACTS
 Bilateral vs. Unilateral
 Unilateral = Action in exchange for promise
 Bilateral = Promise for promise
 Express vs. Implied
 Express = Terms are clear
 Implied-in-Fact = Implied by conduct
 Implied-in-Law = Equitable contract
 Unjust Enrichment
 Quantum Meruit
14

15. CONTRACTS
 Valid vs. Void vs. Voidable
 Valid = One or more parties may enforce
 Void = No enforceable legal obligation
 Voidable = Valid contract but can be avoided or
ratified by one or more
15

16. CONTRACTS
 Offers
 Criteria
 Serious intention
 Reasonably certain terms
 Offer communicated
 Termination of Offer
 Revocation
 By own terms
 Counter-offer
 By law (lapse, destruction, death, illegal)
16

17. CONTRACTS
 Acceptance
 Mirror Image Rule (UCC Different)
 Non-Conforming acceptance may be rejection and counter-
offer
 Mailbox Rule
 Acceptance effective when sent
 Revocation of acceptance effective when received
17

18. CONTRACTS
 Consideration
 Legal Sufficiency vs. Adequacy
 Legal (In)sufficiency
 Pre-existing duty
 Past consideration
 Illusory promise
 Freedom of contract
18

19. NATIONAL AMATEUR BOWLERS V.
TASSOS AND MASSA
19

20. OPERA CO. OF BOSTON V. WOLF
TRAP FOUNDATION
20

21. STAMBOVSKY V. ACKLEY
21

22. WATKINS V. PETRO-SEARCH
22

23. RISK ALLOCATION SUMMARY
 Contractual Indemnity
 Fair notice requirements
 Express negligence
 Conspicuousness
 Insurance
 Duty to defend
 Scope of coverage
 “Occurrence”
 “Eight corners” rule
 Duty to indemnify
 Scope of coverage
 Good faith and fair dealing
23

24. WORKING WITH LAWYERS
 Time is Money, Talk Is Not Cheap
 Ask Questions About Cost
 Your Lawyer Can Budget, But Must Be Told
 Receive Regular Reports
 Remember Cost of Reporting / Phone Calls
 Consider Alternative Fee Arrangements
 Hourly vs. Contingency vs. Partial Contingency vs.
Reverse Contingency vs. Fixed Fee
24