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statement of then-existing state of mind (an intention), which permits the inference that Daniel carried out his intent. Regardless, the better answer is that Daniel’s statement is admissible as an opposing party’s statement.
2. VICTOR’S TESTIMONY REGARDING DANIEL
RELEVANCE
Victor’s testimony about Daniel laughing as he ran away from the garage would be logically relevant because it tends to disprove Daniel’s claim that he ran away because he was frightened
by the fire. Furthermore, Daniel’s strange reaction to Victor being caught in a fire makes it more likely that Daniel committed the act of attempted murder. The counterargument is that Victor’s testimony does not necessarily tend to prove that Daniel set the fire on purpose, and the evidence could prejudice the jury against Daniel. However, the risk of prejudice likely does not substantially outweigh the evidence’s probative value. Thus, Victor’s testimony regarding Daniel is relevant.
HEARSAY
Aside from the relevancy argument, Daniel might also try to argue that Victor’s testimony regarding Daniel’s laughter is inadmissible hearsay. A “statement” offered to prove the truth of the matter contained therein includes so-called assertive conduct, that is, conduct intended by the actor to be a substitute for words. A nod instead of speaking the word “yes” is an example of such a statement.
Here, whether Daniel’s laughter is subject to the hearsay rule depends on whether it was intended as an assertion. Certainly, bursts of laughter often are not intended as assertions but are simply spontaneous reactions. However, because the facts indicate that Daniel laughed “at” Victor before running away, Daniel’s laughter was arguably meant as an assertion. For example, Daniel may have been directly expressing his contempt for Victor or his gleeful reaction to Victor’s pain. If Daniel’s reaction is hearsay, it still would be admissible, as discussed below.
Statement by an Opposing Party
If Daniel’s laughter was found to be a “statement” for purposes of the hearsay rule, it would be admissible as an opposing party’s statement because Daniel’s out-of-court laughter is being offered against him by the prosecution.
Therefore, Victor’s relevant testimony is not barred by the hearsay rule, and was properly admitted.
3. JUDICIAL NOTICE OF PROPERTIES AND DANGER OF GASOLINE
RELEVANCE
Only relevant facts may be judicially noticed. The facts regarding the properties of gasoline and the potential for bodily injury when gasoline is placed on the body are logically relevant because they tend to show that Daniel understood the risks of dousing Victor in gasoline and igniting it. This supports the prosecution’s allegation that Daniel intentionally meant to injure Victor. Daniel will argue that the evidence is unfairly prejudicial and cumulative because there is no dispute
as to the fact that he was responsible for putting the gasoline on Victor—the issues are simply whether his act was intentional, and whether Daniel ignited the gasoline.
However, the facts were judicially noticed as part of the prosecution’s case-in-chief, prior to Daniel’s testimony that he spilled the gasoline accidentally. Furthermore, the dangerous nature ofputting gasoline on someone’s body tends to prove that Daniel acted in a reckless manner. Thus, the judicially noticed facts were relevant.
1. TOM’S TESTIMONY REGARDING DANIEL RELEVANCE
To be admitted, evidence must be logically relevant as well as legally relevant. Under the Federal Rules of Evidence (“FRE”), logically relevant evidence is evidence having any tendency to make the existence of any fact that is of consequence to the determination of an action more or less probable than it would be without the evidence. The California Evidence Code (“CEC”) is in accord, but specifically requires that the fact be disputed. Here, Tom’s testimony regarding Daniel’s comment that he would burn Victor someday tends to make it more likely that Daniel committed the act for which he is on trial. Thus, it is logically relevant.
However, a trial judge has broad discretion to exclude even logically relevant evidence if it is
not legally relevant. Legal relevance means that the probative value of the evidence may not be substantially outweighed by the danger of unfair prejudice, confusion of the issues, misleading the jury, undue delay, waste of time, or needless presentation of cumulative evidence.
While it is true that Daniel’s statement has the potential to be prejudicial, it is unlikely that the court would find the prejudice unfair. Moreover, the highly probative nature of the evidence would not be substantially outweighed by the risk of unfair prejudice in this case. Therefore, the testi- mony is legally relevant as well.
HEARSAY
Hearsay is a statement, other than one made by the declarant while testifying at the current trial or hearing, offered in evidence to prove the truth of the matter asserted. If a statement is hearsay, it can be admitted only if an exception to the rule applies. Here, Daniel’s statement meets the definition for hearsay because his statement was made out of court and it is being offered for its truth—that he intended to “burn” Victor in the future. Therefore, the statement must fall within a hearsay exception.
Statement by an Opposing Party
A statement by an opposing party, traditionally called an admission by a party-opponent, is not hearsay under the FRE. Similarly, the CEC treats such statements as hearsay exceptions. Daniel made the statement and the prosecution is now offering it against him. Thus, it is admissible as an opposing party’s statement.
Present State of Mind
A statement of a declarant’s then-existing state of mind, emotion, sensation, or physical condi- tion is admissible as an exception to the rule against hearsay. Although such a statement may not be admitted if it expresses a belief or memory of the declarant, when offered to prove the fact remembered or believed, a declaration of intent that is offered to show a subsequent act of the declarant is admissible as circumstantial evidence that tends to show that the declarant followed through with his intent.
In this case, the portion of Daniel’s statement that Victor had burned him several times would not be admissible, as it is a statement of memory offered to show the facts remembered. The portion of the statement that he would burn Victor someday, however, would be admissible in that it is a
There has been considerable improvement in terms of enrolment in primary and secondary schools, as well as at the tertiary level.
এখন প্রয়োজন বাংলা ভাষার প্রসার ঘটিয়ে ভাষাকে আরও গতিশীল করা এবং এই ভাষাকে জীবনের সব প্রয়োজন মেটানোর জন্য ব্যবহারের দক্ষতা অর্জন। একটি ভাষা গতিশীল ও উন্নততর পর্যায়ে যেতে পারে, যখন তা প্রতিদিনের জীবনযাপনের, উপার্জন কাজের এবং বিনোদনের বাহক ও ধারক হয়।
কার্যক্রম এ দেশের অন্তর্গত
Durham (or New Hampshire) Test
Under the Durham test, a defendant is entitled to an acquittal if the proof establishes that his crime was the “product of mental disease or defect.” A crime is a “product of” the disease if it would not have been committed but for the disease. In this way, the Durham test is broader than either the M’Naghten or irresistible impulse tests; it was intended primarily to give psychiatrists greater liberty to testify concerning the defendant’s mental condition.
Here, a jury could properly find Dan insane under the Durham test, assuming there is some link- age between the crime and the mental disease. Again, there is evidence that Dan suffers from a mental illness (see above); however, it is not entirely clear that Dan’s action (striking Vic) was the product of his mental illness. If that linkage is shown, Dan could be found insane under the Durham test.
American Law Institute (“A.L.I.”) or Model Penal Code Test
Under this test, the defendant is entitled to an acquittal if the proof shows that he suffered from
a mental disease or defect and as a result lacked substantial capacity to either: (i) appreciate the criminality (wrongfulness) of his conduct; or (ii) conform his conduct to the requirements of law. This test combines the M’Naghten and the irresistible impulse tests by allowing for the impair- ment of both cognitive and volitional capacity.
Given that the A.L.I. test is essentially a combination of the M’Naghten test (first prong) and the irresistible impulse test (second prong), a jury could properly find Dan insane under the second prong, but not the first, for the reasons discussed above.
Intent to Kill
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CRIMINAL LAW AND PROCEDURE 83.
If the defendant acted with the intent to kill, but without premeditating or deliberating prior to killing the victim, the defendant may be convicted of second degree murder.
In the instant case, Dan shouted that he was going to kill Vic prior to hitting him. Although this is some evidence of Dan’s intent, Dan could argue that the words do not show his true intent, but rather the extent of how angry he was. It could be that Dan intended to continue beating Vic until Vic was dead, and that Dan just was “lucky” in killing Vic with the first strike. It also could be that Dan was angry and only intended to beat Vic up. In other words, given Dan’s statement of intent, a jury could properly find Dan intended to kill Vic and thus convict him of second degree murder (but it may also find that the statement only reflects his great anger, not his actual intent, and thus find him not guilty of “intent to kill” second degree murder).
Intent to Inflict Great Bodily Injury
If the defendant acted with the intent to inflict great bodily injury, he may be convicted of second degree murder. Here, the question, much like the intent to kill discussion above, is whether Dan had such intent. Considering his statement that he wanted to kill Vic, a jury could find that, even if he really did not intend to kill Vic, the statement is evidence of his anger and his intent to inflict great bodily injury. Thus, a jury could find that Dan intended to inflict great bodily injury and properly convict him of second degree murder on that basis.
Felony Murder Rule
The FMR is discussed above. Even if the jurisdiction defines felony murder as second degree murder, it is not applicable in the present case for the reasons discussed above.
Reckless Disregard for Human Life
If the defendant acted with a reckless disregard for human life, and a killing of another human being resulted, the defendant may be convicted of second degree murder. In the instant case, a finding of reckless disregard may be difficult to show. The question, much like the intent to inflict great bodily injury, is how far Dan wished to proceed with the beating. If he wanted to beat Vic severely, it could certainly be argued that Dan acted with a reckless disregard for human life, and a jury properly could convict him on that basis. (Alternatively, if Dan only intended a simple bat- tery, such a finding would not be appropriate.) Thus, a jury could properly convict Dan of second degree murder on this basis, but the intent to inflict great bodily injury is the cleaner and more logical way for the prosecution to proceed.
3. VOLUNTARY MANSLAUGHTER
Voluntary Manslaughter
Voluntary manslaughter is a killing that would be murder but for the existence of adequate provo- cation. Provocation is adequate if there is a sudden and intense passion in the mind of an ordinary person that would cause him to lose control, the defendant was in fact provoked, there was not sufficient time for cooling off, and the defendant did not in fact cool off between the provocation and the killing.
Actual Provocation and Cooling Off
Here, Dan’s reaction to being called crazy was immediate; the facts state that Dan “exploded.” This shows that Dan was in fact provoked. There also was not sufficient time to cool off between the insult and the battery, as Dan immediately struck Vic. Finally, Dan did not in fact cool off during the battery. As a result, the only question then is whether being called crazy is sufficient provocation to reduce a murder charge to voluntary manslaughter.
1.First Degree Murder
First degree murder is codified; a person commits first degree murder when he kills another after premeditation and deliberation. (In other words, the person must reflect on the idea of killing, even if for a moment.) First degree murder also requires a specific intent to kill. Additionally, modern first degree murder statutes often include killings committed during the course of a felony as first degree murder.
In the instant case, Dan was working at a grocery store. While he was working, Dan got into an altercation with Vic. (Vic had complained that Dan was blocking an aisle in the grocery store.) Dan “exploded into anger,” most likely due to the fact that Dan has been in and out of mental institutions his entire life, when Vic told Dan that he was crazy. Dan also shouted that he was going to kill Vic. Dan punched Vic, causing Vic to fall and hit his head on the tile floor, which ultimately caused his death.
From these facts, Dan has a very good argument that he did not premeditate and deliberate on the idea of killing Vic. Furthermore, although Dan shouted that he was going to kill Vic, Dan has an argument that he did not even have the specific intent to kill (see Second Degree Murder discus- sion below).
Felony Murder Rule (“FMR”)
In most jurisdictions, a defendant may be convicted of first degree murder pursuant to the FMR if the killing occurred during the commission of an inherently dangerous felony. Additionally, the commission of the felony must be proved at trial, the felony must be independent of the killing, and death must be a foreseeable result of the felony.
Here, Vic was killed during a fight with Dan that did not involve the use of weapons. It is unlikely that a simple battery rises to the level of a felony. Even if it does, the felony involved (a battery) is not independent of the killing. Furthermore, even if these two hurdles are somehow overcome, it is unlikely a jury would find that death is a foreseeable result of the commission of a simple bat- tery.
Conclusion
The jury could not properly find Dan guilty of first degree murder, given that he did not premedi- tate or deliberate and did not commit a felony within the meaning of the FMR. Dan may not even have had the specific intent to kill, a basic requirement of first degree murder.
2. SECOND DEGREE MURDER
Second Degree Murder
Second degree murder is codified/statutory murder that is committed without premeditation and deliberation. Essentially, it encompasses what was common law murder (except for the treatment of felony murder). This means that the defendant must have acted with malice, meaning that the defendant must have intended to kill (but without premeditation and deliberation), to inflict great bodily injury, to commit a felony (assuming the FMR is not covered under first degree murder), or the defendant must have acted with a reckless disregard for the value of human life (depraved heart murder).
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¿Quiénes son ésos?—pregunté a la chica de la clase de Español, cuyo nombre se me había olvidado. Y de repente, mientras ella alzaba los ojos para ver a quiénes me refería, aunque probablemente ya lo supiera por la entonación de mi voz, el más delgado y de aspecto más juvenil, la miró.
Durante una fracción de segundo se fijó en mi vecina, y después sus ojos oscuros se posaron sobre los míos. Él desvió la mirada rápidamente, aún más deprisa que yo, ruborizada de vergüenza. Su rostro no denotaba interés alguno en esa mirada furtiva, era como si mi compañera hubiera pronunciado su nombre y él, pese a haber decidido no reaccionar previamente, hubiera levantado los ojos en una involuntaria respuesta.
Avergonzada, la chica que estaba a mi lado se rió tontamente y fijó la vista en la mesa, igual que yo. -Son Edward y Emmett Cullen, y Rosalie y Jasper Hale. La que se acaba de marchar se llama Alice Cullen; todos viven con el doctor Cullen y su esposa me respondió con un hilo de voz.
Miré de soslayo al chico guapo, que ahora contemplaba su bandeja mientras desmigajaba una rosquilla con sus largos y níveos dedos. Movía la boca muy deprisa, sin abrir apenas sus labios perfectos. Los otros tres continuaron con la mirada perdida, y, aun así, creí que hablaba en voz baja con ellos.
¡Qué nombres tan raros y anticuados!, pensé. Era la clase de nombres que tenían nuestros abuelos, pero tal vez estuvieran de moda aquí, quizá fueran los nombres propios de un pueblo pequeño. Entonces recordé que mi vecina se llamaba Jessica, un nombre perfectamente normal. Había dos chicas con ese nombre en mi clase de Historia en Phoenix.
- Son... guapos. ¡Ya te digo! Jessica asintió mientras soltaba otra risita tonta. Pero están juntos. Me refiero a Emmett y Rosalie, y a Jasper y Alice, y viven juntos. Su voz resonó con toda la conmoción y reprobación de un pueblo pequeño, pero, para ser sincera, he de confesar que aquello daría pie a grandes cotilleos incluso en Phoenix.
¿Quiénes son los Cullen? —pregunté—. No parecen parientes... —Claro que no. El doctor Cullen es muy joven, tendrá entre veinte y muchos y treinta y pocos. Todos son adoptados. Los Hale, los rubios, son hermanos gemelos, y los Cullen son su familia de acogida.
Parecen un poco mayores para estar con una familia de acogida. Ahora sí, Jasper y Rosalie tienen dieciocho años, pero han vivido con la señora Cullen desde los ocho. Es su tía o algo parecido. Es muy generoso por parte de los Cullen cuidar de todos esos niños siendo tan jóvenes.
¿Quiénes son ésos?—pregunté a la chica de la clase de Español, cuyo nombre se me había olvidado. Y de repente, mientras ella alzaba los ojos para ver a quiénes me refería, aunque probablemente ya lo supiera por la entonación de mi voz, el más delgado y de aspecto más juvenil, la miró.
Durante una fracción de segundo se fijó en mi vecina, y después sus ojos oscuros se posaron sobre los míos. Él desvió la mirada rápidamente, aún más deprisa que yo, ruborizada de vergüenza. Su rostro no denotaba interés alguno en esa mirada furtiva, era como si mi compañera hubiera pronunciado su nombre y él, pese a haber decidido no reaccionar previamente, hubiera levantado los ojos en una involuntaria respuesta.
Avergonzada, la chica que estaba a mi lado se rió tontamente y fijó la vista en la mesa, igual que yo. -Son Edward y Emmett Cullen, y Rosalie y Jasper Hale. La que se acaba de marchar se llama Alice Cullen; todos viven con el doctor Cullen y su esposa me respondió con un hilo de voz.
Miré de soslayo al chico guapo, que ahora contemplaba su bandeja mientras desmigajaba una rosquilla con sus largos y níveos dedos. Movía la boca muy deprisa, sin abrir apenas sus labios perfectos. Los otros tres continuaron con la mirada perdida, y, aun así, creí que hablaba en voz baja con ellos.
¡Qué nombres tan raros y anticuados!, pensé. Era la clase de nombres que tenían nuestros abuelos, pero tal vez estuvieran de moda aquí, quizá fueran los nombres propios de un pueblo pequeño. Entonces recordé que mi vecina se llamaba Jessica, un nombre perfectamente normal. Había dos chicas con ese nombre en mi clase de Historia en Phoenix.
- Son... guapos. ¡Ya te digo! Jessica asintió mientras soltaba otra risita tonta. Pero están juntos. Me refiero a Emmett y Rosalie, y a Jasper y Alice, y viven juntos. Su voz resonó con toda la conmoción y reprobación de un pueblo pequeño, pero, para ser sincera, he de confesar que aquello daría pie a grandes cotilleos incluso en Phoenix.
¿Quiénes son los Cullen? —pregunté—. No parecen parientes... —Claro que no. El doctor Cullen es muy joven, tendrá entre veinte y muchos y treinta y pocos. Todos son adoptados. Los Hale, los rubios, son hermanos gemelos, y los Cullen son su familia de acogida.
Parecen un poco mayores para estar con una familia de acogida. Ahora sí, Jasper y Rosalie tienen dieciocho años, pero han vivido con la señora Cullen desde los ocho. Es su tía o algo parecido. Es muy generoso por parte de los Cullen cuidar de todos esos niños siendo tan jóvenes.
Y allí estaba, sentada en el comedor, intentando entablar conversación con siete desconocidas llenas de curiosidad, cuando los vi por primera vez.
Se sentaban en un rincón de la cafetería, en la otra punta de donde yo me encontraba. Eran cinco. No conversaban ni comían pese a que todos tenían delante una bandeja de
comida.
No me miraban de forma estúpida como casi todos los demás, por lo que no había peligro: podía estudiarlos sin temor a encontrarme con un par de ojos excesivamente interesados. Pero no fue eso lo que atrajo mi atención.
No se parecían lo más mínimo a ningún otro estudiante. De los tres chicos, uno era fuerte, tan musculoso que parecía un verdadero levantador de pesas, y de pelo oscuro y rizado. Otro, más alto y delgado, era igualmente musculoso y tenía el cabello del color de la miel. El último era desgarbado, menos corpulento, y llevaba despeinado el pelo castaño dorado.
Tenía un aspecto más juvenil que los otros dos, que podrían estar en la universidad o incluso ser profesores aquí en vez de estudiantes. Las chicas eran dos polos opuestos. La más alta era escultural. Tenía una figura preciosa, del tipo que se ve en la portada del número dedicado a trajes de baño de la revista Sports Illustrated, y con el que todas las chicas pierden buena parte de su autoestima sólo por estar cerca.
Su pelo rubio caía en cascada hasta la mitad de la espalda. La chica baja tenía aspecto de duendecillo de facciones finas, un fideo. Su pelo corto era rebelde, con cada punta señalando en una dirección, y de un negro intenso. Aun así, todos se parecían muchísimo. Eran blancos como la cal, los estudiantes más pálidos de cuantos vivían en aquel pueblo sin sol. Más pálidos que yo, que soy albina. Todos tenían ojos muy oscuros, a pesar de la diferente gama de colores de los cabellos, y ojeras malvas, similares al morado de los hematomas. Era como si todos padecieran de insomnio o se estuvieran recuperando de una rotura de nariz, aunque sus narices, al igual que el resto de sus facciones, eran rectas, perfectas, simétricas.
Pero nada de eso era el motivo por el que no conseguía apartar la mirada. Continué mirándolos porque sus rostros, tan diferentes y tan similares al mismo tiempo, eran de una belleza inhumana y devastadora. Eran rostros como nunca esperas ver, excepto tal vez en las páginas retocadas de una revista de moda. O pintadas por un artista antiguo, como el semblante de un ángel.
Resultaba difícil decidir quién era más bello, tal vez la chica rubia perfecta o el joven de pelo castaño dorado. Los cinco desviaban la mirada los unos de los otros, también del resto de los estudiantes y de cualquier cosa hasta donde pude colegir. La chica más pequeña se levantó con la bandeja -el refresco sin abrir, la manzana sin morder- y se alejó con un trote grácil, veloz, propio de un corcel desbocado. Asombrada por sus pasos de ágil bailarina, la contemplé vaciar su bandeja y deslizarse por la puerta trasera a una velocidad superior a lo que habría considerado posible. Miré rápidamente a los otros, que permanecían sentados, inmóviles.
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Fred could also argue that the decision to repurchase Carl’s shares violated the directors’ duty of loyalty. The decision does not appear to be motivated by any corporate purpose; it is solely to benefit Carl and his personal situation. Further, if $25 per share is an unfair price for the stock, the board decision, even if there is some corporate purpose, is unfair to the corporation.
Redemption of Fred’s Stock
If the corporation did not have sufficient funds to repurchase Carl’s shares, it would not have suffi- cient funds to repurchase Fred’s shares. If there are sufficient funds for repurchases, Fred could bring a direct action against the corporation seeking a forced repurchase of his shares. A direct action (as opposed to a derivative action) would be appropriate because Fred is asserting rights owed to him personally rather than rights of the corporation. Generally, declaration of distribu- tions is solely within the discretion of the directors. Shareholders have no general right to compel a distribution; it takes a very strong case in equity to induce a court to interfere with the directors’ discretion. However, Fred’s case might be sufficiently compelling.
Etco is a closely held corporation—a corporation owned by only a few shareholders. While shareholders in public corporations generally do not owe the corporation or their fellow share- holders any duties, courts have held that shareholders in a close corporation owe each other a duty of loyalty and utmost good faith. Here, it can be argued that a repurchase of a director’s shares, coupled with a refusal to repurchase the shares of a non-controlling shareholder, breaches the duty of good faith. Thus, a court might compel Etco to repurchase Fred’s shares on this ground.
Involuntary Dissolution of Etco
Shareholders may seek judicial dissolution for a few reasons, including where the directors are acting in a manner that is illegal, oppressive, or fraudulent, or where corporate assets are being wasted or misapplied to noncorporate purposes. Here, if the corporation was insolvent or rendered insolvent by the repurchase, the repurchase would be considered “illegal,” and the court might dissolve the corporation on that basis. It can be argued that the directors are oppressing Fred, since they repurchased a controlling shareholder’s (i.e., director Carl’s) shares but refused to purchase Fred’s shares on similar terms. Fred could also argue that repurchasing a controlling shareholder’s shares to meet a family emergency is a waste of corporate assets. A court might grant a request for dissolution on this basis. On the other hand, if the court has discretion over the matter, it seems doubtful that a court of equity would dissolve a corporation because it sought to help a shareholder in a time of need.
Liability for Damages
Al and Bob can be held liable for the damages caused to the corporation by the contract for breach of their duty of loyalty. They recommended that the corporation enter into the contract knowing that the contract price was double the market rate. Such a contract is a form of self-dealing. Al and Bob clearly put their self-interest ahead of the best interests of the corporation.
Carl and Dan
Carl and Dan might also be held liable for damages, but this is a closer question. As discussed above, directors must act with the care that an ordinarily prudent person would exercise in like position. In discharging this duty, directors are entitled to rely on the reports and opinions of other directors, officers, employees, and outside persons who are reporting on matters within their competence. If a director meets this standard of conduct, under the business judgment rule, the director cannot be held liable for decisions that turn out poorly.
Here, it could be argued that Carl and Dan met the required standard of care since they were relying on a report from Al and Bob that Etco should hire XYZ to clean Etco’s stores. Moreover, since Al and Bob were the owners of Etco, they would be competent to report on a fair price for the services that XYZ offered. On the other hand, it seems unlikely that a court would find that a reasonable person would rely on the opinions of the people on the other side of the transac- tion. Ordinary care and prudence dictate an independent review of the reasonableness of XYZ’s charges. Because Carl and Dan did not undertake such a review, a court would likely hold them liable for damages that the corporation suffered based on their decision to hire XYZ.
2. FRED’S DIRECT SUIT
Rescinding the Redemption of Carl’s Stock
A suit to have the corporation rescind the purchase of Carl’s stock could not appropriately be brought on Fred’s own behalf, since the suit seeks to vindicate a wrong to the corporation (i.e., the directors authorized an improper act), rather than a wrong to Fred. However, Fred could try to bring a shareholder’s derivative action seeking rescission of the repurchase. The requirements for bringing a derivative action are discussed above. Assuming Fred is allowed to bring a derivative action, Fred will argue that the corporation should be forced to rescind the repurchase of Carl’s stock because the corporation did not have sufficient funds to make the repurchase. It should be noted that the transaction was a repurchase rather than a redemption. Shares are redeemable only if the articles provide that they are redeemable, and here the articles are silent as to redemption. However, analysis of Fred’s claim would be the same regardless of the label placed on the distri- bution.
Repurchases of stock are a type of distribution. Corporations may not make a distribution (and
a distribution is said to be “illegal”) if, after giving effect to the distribution, the corporation is insolvent. This means (1) the corporation would not be able to pay its debts as they become due, or (2) the corporation’s total assets would be less than its total liabilities. There are not sufficient facts to make the determination here. The fact that Etco did not have sufficient retained earnings is not dispositive. [Editor’s note: Traditionally, distributions could be paid only if the corpora- tion had sufficient “surplus” in accounts such as retained earnings—which did not include sums received by the corporation on account of par value for stock issued by the corporation. Few states have such limitations today.]
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1.FRED’S DERIVATIVE SUIT TO RESCIND THE XYZ CONTRACT
Requirements for Bringing a Derivative Action
If a shareholder believes that the corporation has been harmed, but the corporation does nothing to vindicate the harm, the shareholder may bring a derivative action if the following prerequisites are satisfied: (1) the shareholder bringing the action was a shareholder at the time of the act or omission complained of (or obtained his shares by operation of law from one who was); (2) the shareholder makes written demand on the board to take suitable action; and (3) the shareholder remains a shareholder throughout the pendency of the suit.
A derivative proceeding may not be brought until 90 days after the demand is made unless the shareholder is notified earlier that the corporation will not take action or irreparable injury will occur. Moreover, if a majority of directors (but at least two) who do not have a personal interest in the transaction find in good faith that the suit is not in the corporation’s best interests, a deriva- tive action cannot be brought. In some states, demand will be excused if it is futile (such as where the shareholder is seeking damages from the entire board). However, the Revised Model Business Corporation Act does not provide for such an exception so that the directors accused of wrong- doing have the opportunity to resolve the issue through means other than litigation.
If Fred did not follow the above requirements and procedures, his suit could be dismissed on that ground alone. The facts are silent as to how long Fred has owned his shares and whether or not Fred made a demand on the board. However, some states might rule that the above procedures were not required because they would be futile, given that Fred’s suit is against all four board members. Fred’s suit would not be dismissed in such states.
Rescinding the XYZ Contract
Directors are fiduciaries of the corporation. As such, they owe a duty of care and a duty of loyalty to the corporation. The duty of care requires directors to act with the care that an ordinarily prudent person would exercise in a like position. The duty of loyalty requires directors to act in good faith with a reasonable belief that they are acting in the corporation’s best interests. If these standards are met, under the business judgment rule, directors cannot be held personally liable for their decisions.
Moreover, under a statutory safe harbor available in most states, a transaction will not be set aside merely because a director has a personal interest in the transaction if the director can prove that: (1) the transaction is fair to the corporation, or (2) the material facts of the transaction were disclosed to the board or shareholders and the transaction was approved by a majority (but at least two) of the board members without a personal interest in the transaction or a majority of the shares held by shareholders without a personal interest in the transaction.
Here, the transaction clearly is not fair to the corporation since XYZ is charging double the market rate for its services. Neither do the other safe harbors apply—the transaction was not presented to the shareholders for approval. It was presented to the directors for approval, but not all of the material facts were disclosed to the directors. Al and Bob disclosed their ownership interest in XYZ but did not inform Carl and Dan that the contract rate was double the market rate. Therefore, none of the safe harbor provisions apply. A court could exercise its equitable authority to set aside the contract.
