The document discusses fiduciary duty in several contexts. It begins by summarizing Mark Hurd's career as CEO of HP and his resignation following a sexual harassment complaint. This led to a shareholder lawsuit alleging HP's board breached its fiduciary duty by approving a large severance package for Hurd. The document then examines fiduciary duties of corporate officers and directors, as well as between spouses. It analyzes fiduciary duty questions around Bernard Madoff's Ponzi scheme and the divorce of LA Dodgers owners Frank and Jamie McCourt.

1. Business Law Team 3 FIDUCIARY DUTY

2. A Breach of Fiduciary Duty Team 3 members: Wendy Gillis Liza Kollen Keith McDermott Tom Morgan Jon Shelton

3. Mark Hurd – Superstar CEO In March 2003, Mark Hurd was appointed his first CEO position, as the head of NCR Corp. Over the next 2 years, NCR’s stock price tripled. [1] In April 2005, Hewlett-Packard (HP) came calling and hired Hurd as their new CEO “based on his track record and strong executive and personal qualities.” [1]

4. Mark Hurd – Superstar CEO From 2005 to 2009, HP’s sales revenue increased 32%, profit increased 221%, and their stock price increased 170%. [1] Hurd was looked upon as one of the best CEO’s in the world. However, on August 7, 2010, Hurd dropped a bombshell when he announced his resignation from HP. [2] HP Stock Price

5. Mark Hurd – Ex-Superstar CEO Sexual Harassment complaint was filed in June HP initiated an internal investigation The investigation found no violations of HP’s sexual harassment policy, however did find violations of HP’s business standards Hurd submitted inaccurate expense reports that were intended to conceal a “close personal relationship” with contractor, Jodie Fisher. [2,10]

6. Mark Hurd – Ex-Superstar CEO HP’s board of directors asked Hurd to step down, and in the process granted him a $12.2 million cash severance payment. With stock and other payouts included, the total payout could reach $35 million. [2] HP said Hurd did three things to end his employment He failed to disclose a "close personal relationship" with Fisher; There were "numerous" instances in which Fisher received compensation and reimbursement when there was no legitimate legal reason and; There were inaccurate expense reports submitted that "intended to or had the effect of concealing" that relationship with Fisher. [10]

7. Mark Hurd – Ex-Superstar CEO Not surprisingly, a shareholder derivative suit was filed August 13, 2010, alleging HP’s directors violated their fiduciary duties in connection with the events surrounding Hurd’s resignation and severance payout. [3] The suit seeks punitive damages for breach of fiduciary duty and mismanagement of corporate assets. The suit alleges the board’s authorization of the severance payments was an abuse of the discretion and violation of the board’s loyalty to HP and it’s shareholders. [4]

8. Case Questions Which duties did Hurd violate? How? Was Hurd’s violation a fire-able offense? Was the severance payout a breach of the board’s fiduciary duty? Can HP recover from this scandal when their actions are being scrutinized? First, we need to define fiduciary duty . . .

9. Fiduciary Duty A can be a breach of the agency contract and/ or a criminal act.

10. Fiduciary Duty Definition One of the most important duties of an agent to their principal is their fiduciary duty, which has very strict obligations. Fiduciary duty includes: Duty to obey instructions Duty to act with skill Duty of loyalty (duty to avoid conflict of interest) Duty to protect confidential information Duty to notify Duty to account

11. Fiduciary Duty Definition In addition to the agent/ principal relationship, fiduciary duty standards also apply to partnerships (each partner has a fiduciary duty to the other partners) and officers and directors of corporations (to their shareholders.) For these individuals, there are some additional duties: No usurpation of corporate opportunity No personal use of corporate assets Restrictions on transactions in shares

12. Case Questions Answered Which duties did Hurd violate? Duty of loyalty (duty to avoid conflict of interest) Duty to notify No usurpation of corporate opportunity How did Hurd violate these duties? As CEO, Hurd violated his power at HP. Some articles state that he didn’t disclose his relationship with Fisher, but he shouldn’t have had the relationship to begin with. He wasn’t loyal to HP when he “fudged” his expense reports. And Hurd misused his power and authority for personal gain.

13. Case Questions Answered Was Hurd’s violation even a fire-able offense? Although falsifying expense reports is typically a fire-able offense, we believe there is more going on behind the scenes than what has been made public. Fortune 500 corporations don’t typically fire their CEO’s for minor transgressions and pay large severance expenses when a slap on the wrist is more appropriate (total questionable expenses totaled no more than $20K.) [2]

14. Case Questions Answered Was the severance payout a breach of the board’s fiduciary duty? Based upon the information made public at this point in time, we believe the severance payout was a breach of the board’s fiduciary duty. If Hurd committed a fire-able offense and the board chose to fire him, Hurd should not be eligible to receive any severance, especially one that could total $35 million.

15. Case Questions Answered Can HP recover from this scandal when their actions are being scrutinized? All eyes are on HP today as we wait to see how they will handle this scandal. They can’t shrug it off. [10] HP must disclose the FULL truth – investors, employees, and customers have the right to judge how they handled this situation. [10]

16. Another Fiduciary Duty Case Not all fiduciary duty cases are as questionable as HP’s. Most cases are more cut and dry. For example, Bernard Madoff . . .

17. Bernard Madoff – Ponzi Scheme Ringmaster Madoff breached his fiduciary duty to investors in his Investment Securities LLC when he stole an estimated $50 billion of investors 'money, the largest Ponzi scheme in history (or largest scheme caught so far.) [5 As a result, Madoff was sentenced to 150 years in prison. [5] His fiduciary breach has spawned hundreds of lawsuits and most investors will never get their money back.

18. Madoff and the SEC The doctrine of sovereign immunity limits the kind of cases in which a U.S. citizen can sue the government for damages. [6] Current lawsuit cites negligent actions and inactions such as not following up on tips or verifying basic facts. [6]

19. Madoff and the SEC Does the SEC have a fiduciary duty to protect investors? Legally it appears to be no, but from a consumer stand point it should be yes. If the SEC ignored obvious signs of impropriety by Madoff they should bare some of the burden of refunding investors. The regulatory and enforcement agency has a duty to help protect investment consumers make.

20. But what about Fiduciary Duty outside the “corporate” world? +

21. Spousal Fiduciary Duty The fiduciary duty between husband and wife allows both spouses full management and control of community property.[7] A spouse can file civil action against the other for abuse of fiduciary duty - Normally occurs during divorce. [7] Burden of proof lies with the party taking action. [7]

22. The Dodgers & the McCourt’s Divorce Jamie and Frank McCourt are in a bitter divorce with the LA Dodgers as the major sticking point. [8] The main contention in the case is whether the Dodgers are ‘community property’. [8] Signed documents state Frank McCourt is the sole owner. California has strict community-property rules.

23. Dodgers – McCourt’s Divorce Jamie supposedly agreed to Frank solely owning the team to avoid risk. [8] California law states that agreements signed are invalid if they give one spouse disproportionate share of the marital goods. [8] It is alleged, Jamie, as CEO of the Dodgers, had an inappropriate sexual relationship and oversaw numerous unethical business dealings. [9]

24. Dodgers – McCourt’s Divorce Should California’s spousal fiduciary laws overrule signed agreements? This case is complex due to community property being mixed with business dealings. A home-equity loan was taken to finance some of these business dealings, therefore mixing the team and personal assets [8]. Therefore it appears, regardless of previous agreements, the team now falls under community property.

25. Dodgers – McCourt’s Divorce Jamie, as CEO, oversaw numerous shady dealings. Has she violated her fiduciary duty to the team? The violation of the team’s sexual relationship policy is a violation of her fiduciary duty. Funneling money to her children and hiring a ‘healer’, while unethical are not in violation of her duties. Frank as owner was most likely aware of these activities as well. [9]

26. Dodgers – McCourt’s Divorce Do the McCourt’s have a fiduciary duty to fans (Season Ticket Holders)? This is an extremely grey area. If the turmoil of the divorce or unethical business dealings are harming the product (Dodgers winning) are the season ticket holders entitled to a refund? No team guarantee's winning and the product is not harming the ticket holders. They may have a want to win, but not a duty.

27. Fiduciary Duty - Gray Area Fiduciary Duties are a gray area in almost every circumstance. Corporate governance, CEO pay, investment advice, and spousal duties can be interpreted many different ways. Should there be a variable scale when considering fiduciary duty? For example, would a smarter person be held to a higher standard?

28. How to avoid neglecting your fiduciary duty: Act ethically The best interest of the client (principal) must be put above the agent Understand and uphold assigned duties Understand and practice your field’s standard of care Don’t cheat on your spouse Don’t run a Ponzi scheme or any scheme

29. Conclusion: Fiduciary duties span many different areas from corporate governance to marriage The enforcement of fiduciary duty is an extremely gray area even though duties are clearly laid out

30. Sources [1] “Mark Hurd – Rise and Fall of a CEO”, San Jose Business Journal Online, August 9, 2010 http://sanjose.bizjournals.com/sanjose/stories/2010/08/02/daily122.html [2] Tam, Pui-Wing; Worthen, Ben/ “H-P Chief Quits in Scandal”, Wall Street Journal Online, August 7, 2010 http://online.wsj.com/article/SB10001424052748703309704575413663370670900.html?KEYWORDS=mark+hurd [3] Lublin, Joann; Worthen, Ben. “H-P Board Sued on Hurd Exit”, Wall Street Journal Online, August 13, 2010 http://online.wsj.com/article/SB10001424052748704407804575425604267086896.html?KEYWORDS=mark+hurd [4] Miller, Amy. “HP Hit With Derivative Suit Over Hurd’s Severance”, The Recorder, www.law.com, August 16, 2010 http://www.law.com/jsp/ca/PubArticleCA.jsp?id=1202466636622&slreturn=1&hbxlogin=1 [5] Henriques, Diana. “Madoff is Sentenced to 150 Years for Ponzi Scheme”, www.nytimes.com, June 29, 2009. http://www.nytimes.com/2009/06/30/business/30madoff.html?_r=3&hp [6] Scannell, Kara. “Two Investors Sue SEC Over Madoff Probe”, www.wsj.com, October 15, 2009. http://online.wsj.com/article/NA_WSJ_PUB:SB125553847707385223.html [7] LaMance, Ken. “Fiduciary Duty Of Husband And Wife Lawyers”, www.legalmatch.com, August 20, 2010. http://www.legalmatch.com/law-library/article/fiduciary-duty-of-husband-and-wife.html [8] Steinhauer, Jennifer. “Dodgers’ Fate Hinges on Owners’ Divorce”, www.nytimes.com, July 9, 2010. http://www.nytimes.com/2010/07/10/us/10divorce.html?pagewanted=1&_r=1 [9] “No-shows, nepotism and Russian healers: Dodgers divorce brings much to light”, USA Today Online, July 26, 2010, http://content.usatoday.com/communities/dailypitch/post/2010/07/no-shows-nepotism-and-russian-healers-dodgers-divorce-brings-much-to-light/1 [10] O’Brien, Chris, “O'Brien: Questions linger about the HP split with Hurd”, MercuryOnline.com, August 20, 2010, http://www.mercurynews.com/breaking-news/ci_15845576?nclick_check=1 [A] All imagessources from Google Images

31. End of segment