Question

brief IRAC of case 40.1 Oliveira v. Sugarman

Answer 1

Case History: The shareholders of istar Inc., a Maryland corporation had promised award of shares to its employees provided the stock should have a particular average price within a specified period. The target was missed, but the BOD of company changed the basis and decided that a award will be given based on service and not performance. Two shareholders, Albert and Lena Oliveira of the company said that BOD has not acted within their duties and they should rescind the award. A director from outside of the company was hired to make a investigation, his name was Barry Ridings, he gave a clean cheat to BOD, both shareholders moved to court.

Issue: The issue is to see that whether riding's way of investigation and his conclusion of the case is correct or not, whether right procedures were adopted or not. Both shareholders argued that riding had conflict of interest in the case and therefore, the procedure adopted is not impartial enough to do a justice.

Rule of Law: The business judgement rule clearly states that a director or a corporate officer shall not be liable to the company or its shareholders, if the mistakes made by him is a judgement mistake and is honest, also he is not liable for bad business decisions, because it is a part and parcel of a business life cycle. The rule states that as long as the officer:

• Took reasonable steps to become aware about the concerned matter
• There is a rational basis behind the decision that is being made by him or her.
• There is no conflict of interest between his interest and the interest of the corporation

Analysis: The contention of both the shareholders appears to be untrue. This is primarily because of the fact that Riding had the experience of around 40 years in business. He has also served on the boards of major public companies which further strengthens his judgement. He hired experts and legal counsels of highest standards and only after conducting various rounds of interview he have reached the conclusion. Also there were no evidence of ongoing business relationship of riding with the company. Moreover, the contention of the shareholders have also been rejected by the lower court which makes it more clear that contention does not have enough base.

Conclusion: The shareholders have not able to show sufficient evidence which can surpass the presumption of business judgement rule. The board acted in their duty and thus can not be responsible inefficiency in any way. The state intermediate appellate court held that the decision taken by the lower court is correct and the case was dismissed.