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RE: fiduciary duty, entire fairness and opportunity cost

From: Kleinberger, Daniel <DKleinberger@WMitchell.edu>
Date: Thu, 11 Mar 2004 20:32:08 -0600
Message-ID: <LYRIS-24436-16786-2004.03.11-21.31.03--www-validator-css#w3.org@list.law.umaryland.edu>
To: "BIZLAW" <bizlaw@list.law.umaryland.edu>

But in Wrigley, the BOD was protected by the business judgment rule.  Doesn't the bjr go away when the plaintiff rebuts one of its underlying presumptions (in this case, the presumption that the BOD acted loyally)?  In essence, I'm asking whether -- when a loyalty breach exists -- the result is a more exacting standard of care.

Professor Daniel S. Kleinberger
William Mitchell College of Law
875 Summit Avenue
St. Paul, MN  55105
voice:   651/290-6387
fax:      651/290-6414
dkleinberger@wmitchell.edu


-----Original Message-----
From: richardbooth [mailto:richardbooth@verizon.net] 
Sent: Thursday, March 11, 2004 4:15 PM
To: BIZLAW
Subject: RE: fiduciary duty, entire fairness and opportunity cost


What if the two are somehow mutually exclusive and the company chooses the lesser yielding one?

Frankly, I can hardly imagine how a plaintiff could ever win such a case. The BOD can always argue that it thought there was more risk in the higher yielding venture. Isn't this night baseball at Wrigley all over again? 

RAB

Richard A. Booth
Professor of Law
Faculty Editor -- The Business Lawyer
University of Maryland School of Law
500 West Baltimore Street
Baltimore, Maryland 21201
Phone: 410-706-4269 
Fax: 410-706-2184


-----Original Message-----
From: Peter Letsou [mailto:pletsou@willamette.edu] 
Sent: Thursday, March 11, 2004 5:14 PM
To: BIZLAW
Subject: Re: fiduciary duty, entire fairness and opportunity cost

Maybe so.  But should the court permit an entire fairness challenge that is premised on the theory that the market won't finance an alternative transaction that the plaintiff claims offers an above-market-rate return (and therefore is preferable to the market rate transaction actually selected)?

Peter Letsou

 transaction is ----- Original Message ----- 
From: "Daniel Posin" <dposin@law.tulane.edu>
To: "BIZLAW" <bizlaw@list.law.umaryland.edu>
Sent: Thursday, March 11, 2004 1:52 PM
Subject: RE: fiduciary duty, entire fairness and opportunity cost


I don't know about that.  You can't always borrow what you want (unless you're Enron at its height).

Daniel Q Posin
Judge René H. Himel Professor of Law
Tulane Law School
6329 Freret Street
New Orleans, LA 70118
504-865-5982 (O)
504-862-8846 (F)
dposin@law.tulane.edu



-----Original Message-----
From: Peter Letsou [mailto:pletsou@willamette.edu]
Sent: Thursday, March 11, 2004 3:51 PM
To: BIZLAW
Subject: Re: fiduciary duty, entire fairness and opportunity cost


It could certainly be the case that the firm is presented with two investment opportunities, one that has a positive net present value and another (the conflict of interest transaction) that has a zero net present value.  Taking the positive net present value opportunity would certainly seem to be the correct choice if the firm had to choose.  But why should the firm have to choose?  If the foregone (unconflicted) opportunity really has a positive net present value, then the firm should be able to find financing to take advantage of that opportunity as well.  If this is correct, then the availability of the second opportunity should have no bearing on the "entire fairness" of the first.

Peter Letsou

----- Original Message ----- 
From: "Daniel Posin" <dposin@law.tulane.edu>
To: "BIZLAW" <bizlaw@list.law.umaryland.edu>
Sent: Thursday, March 11, 2004 1:10 PM
Subject: RE: fiduciary duty, entire fairness and opportunity cost


Yeah, I'm having trouble putting the idea that the transaction was the arm's length fair price together with the idea that there was a superior opportunity available for limited corporate funds.  Of course maybe the alternative was something of unusual value uniquely (and briefly) available to the company, for one reason or another.  I'd like to see Vice Chancellor Strine tee off on that one.

Daniel Q Posin
Judge René H. Himel Professor of Law
Tulane Law School
6329 Freret Street
New Orleans, LA 70118
504-865-5982 (O)
504-862-8846 (F)
dposin@law.tulane.edu



-----Original Message-----
From: Beveridge, Norwood [mailto:paladin@okcu.edu]
Sent: Thursday, March 11, 2004 2:32 PM
To: BIZLAW
Subject: RE: fiduciary duty, entire fairness and opportunity cost


I assume that the opportunity is one that the company can use.  Also, that it has funds available.  If the company has limited funds and other more attractive investment opportunities (from an ROI or other point of view), that should be considered in my opinion, although I don't recall seeing this discussed.  Seems to me this is comprehended in the concept of arms' length transaction.

Norwood P. Beveridge

-----Original Message-----
From: John Matheson [mailto:mathe001@tc.umn.edu]
Sent: Thursday, March 11, 2004 2:23 PM
To: BIZLAW
Subject: Re: fiduciary duty, entire fairness and opportunity cost


Dan--Courts (that is, judges) generally aren't that sophisiticated. Indeed, I truly believe that only academics would even ask the question.  If the decision is within the range of reasonableness, in the sense that the deal could be justified on an arm-length basis, a Delaware court would not second guess it---and I would hope that a Minnesota court would not either. Good to hear from you.  John

On 11 Mar 2004, at 14:04, Kleinberger, Daniel wrote:

> I'm looking for guidance on the following question.
>
> Assume that under applicable law managers defending a conflict of 
> interest transaction have the burden of proving the "entire fairness" 
> of the challenged transaction. Clearly, if the transaction was 
> worthless to the entity, the analysis is simple. Likewise, if the 
> transaction was of value to the entity but the price was above the 
> price that would have been set through arm's length bargaining, the 
> transaction was not fair. Assume, however, that the price was the 
> arm's length price. Does the entire fairness analysis have to consider

> the opportunity cost of the decision to invest entity funds in that 
> transaction rather than some other transaction?
>
> Thanks.
>
> (This question has also been posted to the LNET-LLC list serv.  Sorry 
> for the duplication for those who are subscribed both to this list and
> that.)
>
> Daniel Kleinberger
>
> Professor Daniel S. Kleinberger
> William Mitchell College of Law
> 875 Summit Avenue
> St. Paul, MN  55105
> voice:   651/290-6387
> fax:      651/290-6414
> dkleinberger@wmitchell.edu
>
> ______________________________________________________________________
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John H. Matheson
Melvin C. Steen and Corporate Donors Professor of Law University of Minnesota Law School 229 19th Avenue South Minneapolis, Minnesota 55455 612-625-3879 (phone) 612-625-2011 (fax) mathe001@umn.edu (e-mail)

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Received on Thursday, 11 March 2004 21:31:04 GMT

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