CASE:

In re The Walt Disney Co. Derivative Litigation

907 A.2d 693 (Del. Ch. 2005)

JACOBS, Justice:

[The Walt Disney Company hired Ovitz as its executive president and as a board member for five years after lengthy compensation negotiations. The negotiations regarding Ovitz’s compensation were conducted predominantly by Eisner and two of the members of the compensation committee (a four-member panel). The terms of Ovitz’s compensation were then presented to the full board. In a meeting lasting around one hour, where a variety of topics were discussed, the board approved Ovitz’s compensation after reviewing only a term sheet rather than the full contract. Ovitz’s time at Disney was tumultuous and short-lived.]…In December 1996, only fourteen months after he commenced employment, Ovitz was terminated without cause, resulting in a severance payout to Ovitz valued at approximately $ 130 million. [Disney shareholders then filed derivative actions on behalf of Disney against Ovitz and the directors of Disney at the time of the events complained of (the “Disney defendants”), claiming that the $130 million severance payout was the product of fiduciary duty and contractual breaches by Ovitz and of breaches of fiduciary duty by the Disney defendants and a waste of assets. The Chancellor found in favor of the defendants. The plaintiff appealed.]

We next turn to the claims of error that relate to the Disney defendants. Those claims are subdivisible into two groups: (A) claims arising out of the approval of the OEA [Ovitz employment agreement] and of Ovitz’s election as President; and (B) claims arising out of the NFT [nonfault termination] severance payment to Ovitz upon his termination. We address separately those two categories and the issues that they generate.…

…[The due care] argument is best understood against the backdrop of the presumptions that cloak director action being reviewed under the business judgment standard. Our law presumes that “in making a business decision the directors of a corporation acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company.” Those presumptions can be rebutted if the plaintiff shows that the directors breached their fiduciary duty of care or of loyalty or acted in bad faith. If that is shown, the burden then shifts to the director defendants to demonstrate that the challenged act or transaction was entirely fair to the corporation and its shareholders.…

The appellants’ first claim is that the Chancellor erroneously (i) failed to make a “threshold determination” of gross negligence, and (ii) “conflated” the appellants’ burden to rebut the business judgment presumptions, with an analysis of whether the directors’ conduct fell within the 8 Del. C. § 102(b)(7) provision that precludes exculpation of directors from monetary liability “for acts or omissions not in good faith.” The argument runs as follows: Emerald Partners v. Berlin required the Chancellor first to determine whether the business judgment rule presumptions were rebutted based upon a showing that the board violated its duty of care, i.e., acted with gross negligence. If gross negligence were established, the burden would shift to the directors to establish that the OEA was entirely fair. Only if the directors failed to meet that burden could the trial court then address the directors’ Section 102(b)(7) exculpation defense, including the statutory exception for acts not in good faith.

This argument lacks merit. To make the argument the appellants must ignore the distinction between (i) a determination of bad faith for the threshold purpose of rebutting the business judgment rule presumptions, and (ii) a bad faith determination for purposes of evaluating the availability of charter-authorized exculpation from monetary damage liability after liability has been established. Our law clearly permits a judicial assessment of director good faith for that former purpose. Nothing in Emerald Partners requires the Court of Chancery to consider only evidence of lack of due care (i.e. gross negligence) in determining whether the business judgment rule presumptions have been rebutted.…

The appellants argue that the Disney directors breached their duty of care by failing to inform themselves of all material information reasonably available with respect to Ovitz’s employment agreement.…[but the] only properly reviewable action of the entire board was its decision to elect Ovitz as Disney’s President. In that context the sole issue, as the Chancellor properly held, is “whether [the remaining members of the old board] properly exercised their business judgment and acted in accordance with their fiduciary duties when they elected Ovitz to the Company’s presidency.” The Chancellor determined that in electing Ovitz, the directors were informed of all information reasonably available and, thus, were not grossly negligent. We agree.

…[The court turns to good faith.] The Court of Chancery held that the business judgment rule presumptions protected the decisions of the compensation committee and the remaining Disney directors, not only because they had acted with due care but also because they had not acted in bad faith. That latter ruling, the appellants claim, was reversible error because the Chancellor formulated and then applied an incorrect definition of bad faith.

…Their argument runs as follows: under the Chancellor’s 2003 definition of bad faith, the directors must have “consciously and intentionally disregarded their responsibilities, adopting a ‘we don’t care about the risks’ attitude concerning a material corporate decision.” Under the 2003 formulation, appellants say, “directors violate their duty of good faith if they are making material decisions without adequate information and without adequate deliberation[,]” but under the 2005 post-trial definition, bad faith requires proof of a subjective bad motive or intent. This definitional change, it is claimed, was procedurally prejudicial because appellants relied on the 2003 definition in presenting their evidence of bad faith at the trial.…

Second, the appellants claim that the Chancellor’s post-trial definition of bad faith is erroneous substantively. They argue that the 2003 formulation was (and is) the correct definition, because it is “logically tied to board decision-making under the duty of care.” The post-trial formulation, on the other hand, “wrongly incorporated substantive elements regarding the rationality of the decisions under review rather than being constrained, as in a due care analysis, to strictly procedural criteria.” We conclude that both arguments must fail.

The appellants’ first argument—that there is a real, significant difference between the Chancellor’s pre-trial and post-trial definitions of bad faith—is plainly wrong. We perceive no substantive difference between the Court of Chancery’s 2003 definition of bad faith—a “conscious and intentional disregard [of] responsibilities, adopting a we don’t care about the risks’ attitude…”—and its 2005 post-trial definition—an “intentional dereliction of duty, a conscious disregard for one’s responsibilities.” Both formulations express the same concept, although in slightly different language.

The most telling evidence that there is no substantive difference between the two formulations is that the appellants are forced to contrive a difference. Appellants assert that under the 2003 formulation, “directors violate their duty of good faith if they are making material decisions without adequate information and without adequate deliberation.” For that ipse dixit they cite no legal authority. That comes as no surprise because their verbal effort to collapse the duty to act in good faith into the duty to act with due care, is not unlike putting a rabbit into the proverbial hat and then blaming the trial judge for making the insertion.

…The precise question is whether the Chancellor’s articulated standard for bad faith corporate fiduciary conduct—intentional dereliction of duty, a conscious disregard for one’s responsibilities—is legally correct. In approaching that question, we note that the Chancellor characterized that definition as “an appropriate (although not the only) standard for determining whether fiduciaries have acted in good faith.” That observation is accurate and helpful, because as a matter of simple logic, at least three different categories of fiduciary behavior are candidates for the “bad faith” pejorative label.

The first category involves so-called “subjective bad faith,” that is, fiduciary conduct motivated by an actual intent to do harm. That such conduct constitutes classic, quintessential bad faith is a proposition so well accepted in the liturgy of fiduciary law that it borders on axiomatic.…The second category of conduct, which is at the opposite end of the spectrum, involves lack of due care—that is, fiduciary action taken solely by reason of gross negligence and without any malevolent intent. In this case, appellants assert claims of gross negligence to establish breaches not only of director due care but also of the directors’ duty to act in good faith. Although the Chancellor found, and we agree, that the appellants failed to establish gross negligence, to afford guidance we address the issue of whether gross negligence (including a failure to inform one’s self of available material facts), without more, can also constitute bad faith. The answer is clearly no.

…”issues of good faith are (to a certain degree) inseparably and necessarily intertwined with the duties of care and loyalty.…” But, in the pragmatic, conduct-regulating legal realm which calls for more precise conceptual line drawing, the answer is that grossly negligent conduct, without more, does not and cannot constitute a breach of the fiduciary duty to act in good faith. The conduct that is the subject of due care may overlap with the conduct that comes within the rubric of good faith in a psychological sense, but from a legal standpoint those duties are and must remain quite distinct.…

The Delaware General Assembly has addressed the distinction between bad faith and a failure to exercise due care (i.e., gross negligence) in two separate contexts. The first is Section 102(b)(7) of the DGCL, which authorizes Delaware corporations, by a provision in the certificate of incorporation, to exculpate their directors from monetary damage liability for a breach of the duty of care. That exculpatory provision affords significant protection to directors of Delaware corporations. The statute carves out several exceptions, however, including most relevantly, “for acts or omissions not in good faith.…” Thus, a corporation can exculpate its directors from monetary liability for a breach of the duty of care, but not for conduct that is not in good faith. To adopt a definition of bad faith that would cause a violation of the duty of care automatically to become an act or omission “not in good faith,” would eviscerate the protections accorded to directors by the General Assembly’s adoption of Section 102(b)(7).

A second legislative recognition of the distinction between fiduciary conduct that is grossly negligent and conduct that is not in good faith, is Delaware’s indemnification statute, found at 8 Del. C. § 145. To oversimplify, subsections (a) and (b) of that statute permit a corporation to indemnify (inter alia) any person who is or was a director, officer, employee or agent of the corporation against expenses…where (among other things): (i) that person is, was, or is threatened to be made a party to that action, suit or proceeding, and (ii) that person “acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation.…” Thus, under Delaware statutory law a director or officer of a corporation can be indemnified for liability (and litigation expenses) incurred by reason of a violation of the duty of care, but not for a violation of the duty to act in good faith.

QUESTION:   
i. How did the court view the plaintiff’s argument that the Chancellor had developed two different types of bad faith? Why?
ii. What two statutory provisions has the Delaware General Assembly passed that address the distinction between bad faith and a failure to exercise due care (i.e., gross negligence)? Why are they important?

a) Harris News receives payments on 3-month newspaper subscriptions of $9,000 on December 1. On December 1, Harris debits Cash $9,000 and credits Revenue $9,000. Adjusting entries are prepared monthly. At December 31, Harris will _______ Revenue for__________. **Show all steps/work in determining revenue amount.

b) Total Fitness Inc. sells $6,000 worth of 1-year club memberships on August 1, Year 1.Total Fitness's fiscal year ends December 31. The balance in the Unearned Revenue account at December 31, Year 1 is_______? **Show all steps/work in determining Unearned Revenue amount.

1.Revenue and profit are the same thing.

a.True

b.False

2.In the short run for a particular market, there are 300 firms. Each firm has a marginal cost of $30 when it produces 200 units of output. $30 is above every firm's average variable cost. One point on the market supply curve is

3.Profit maximizing quantity is the level of quantity where

4.Most of the firms in today's world are perfectly competitive.

a.True

b.False

5.For firms operating in a perfectly competitive market, price must always be greater than marginal revenue.

a.True

b.False

1. Find the maximum of the following total revenue function (TR) by finding out (a) the output ?∗ value where the first order condition is satisfied; and (b) the maximum total revenue.

??(?)=32?−?2

2. Find the maximum of the following profit function by finding out (a) the output ?∗ value where the first order condition is satisfied; and (b) the maximum profit.

?(?)=−?33−5?2+2000?−326.

3. Find the minimum of the average cost function given following total cost function by finding out (a) the output ?∗value where the first order condition is satisfied; and (b) the minimum average cost.

??(?)=?3−21?2+500?

4. Given the following total revenue function ??(?) and the total cost function ??(?), maximize profit ?(?) by following steps

(a) set up the profit function

?=??(?)−??(?)

(b) the output value where the profit is at a relative extremum; and

(c) the maximum profit value.

??(?)=4350?−13?2

??(?)=?3−5.5?2+150?+675.

(please answer all)

Sales-Related Transactions Using Perpetual Inventory System

The following selected transactions were completed by Green Lawn Supplies Co., which sells irrigation supplies primarily to wholesalers and occasionally to retail customers:

Required:

Journalize the entries to record the transactions of Green Lawn Supplies Co. For a compound transaction, if no entry is required, leave the entry box blank.

Sales-Related Transactions using Perpetual Inventory System

The following selected transactions were completed by Green Lawn Supplies Co., which sells irrigation supplies primarily to wholesalers and occasionally to retail customers:

July 1. Sold merchandise on account to Landscapes Co., $33,450, terms FOB shipping point, n/eom. The cost of the goods sold was $20,000.
2. Sold merchandise for $86,000 plus 8% sales tax to retail cash customers. The cost of the goods sold was $51,600.
5. Sold merchandise on account to Peacock Company, $17,500, terms FOB destination, 1/10, n/30. The cost of the goods sold was $10,000.
8. Sold merchandise for $112,000 plus 8% sales tax to retail customers who used VISA cards. The cost of the goods sold was $67,200.
13. Sold merchandise to customers who used MasterCard cards, $96,000. The cost of the goods sold was $57,600.
14. Sold merchandise on account to Loeb Co., $16,000, terms FOB shipping point, 1/10, n/30. The cost of the goods sold was $9,000.
15. Received check for amount due from Peacock Company for sale on July 5.
16. Issued credit memo for $3,000 to Loeb Co. for merchandise returned from the sale on July 14. The cost of the merchandise returned was $1,800.
18. Sold merchandise on account to Jennings Company, $11,350, terms FOB shipping point, 2/10, n/30. Paid $475 for freight and added it to the invoice. The cost of the goods sold was $6,800.
24. Received check for amount due from Loeb Co. for sale on July 14 less credit memo of July 16.
28. Received check for amount due from Jennings Company for sale of July 18.
31. Paid Black Lab Delivery Service $8,550 for merchandise delivered during July to customers under shipping terms of FOB destination.
31. Received check for amount due from Landscapes Co. for sale of July 1.
Aug. 3. Paid Hays Federal Bank $3,770 for service fees for handling MasterCard and VISA sales during July.
10. Paid $41,260 to state sales tax division for taxes owed on sales.

Required:

Journalize the entries to record the transactions of Green Lawn Supplies Co. For a compound transaction, if an amount box does not require an entry, leave the box blank.

Date Account Debit Credit
July 1-sale

Date Account Debit Credit
July 1-cost

Date Account Debit Credit
July 2-sale

Date Account Debit Credit
July 2-cost

Date Account Debit Credit
July 5-sale

Date Account Debit Credit
July 5-cost

Date Account Debit Credit
July 8-sale

Date Account Debit Credit
July 8-cost

Date Account Debit Credit
July 13-sale

Date Account Debit Credit
July 13-cost

Date Account Debit Credit
July 14-sale

Date Account Debit Credit
July 14-cost

Date Account Debit Credit
July 15

Date Account Debit Credit
July 16-return

Date Account Debit Credit
July 16-cost

Date Account Debit Credit
July 18-sale

Date Account Debit Credit
July 18-freight

Date Account Debit Credit
July 18-cost

Date Account Debit Credit
July 24

Date Account Debit Credit
July 28

Date Account Debit Credit
July 31-freight

Date Account Debit Credit
July 31-collection

Date Account Debit Credit
Aug. 3

Date Account Debit Credit
Aug. 10

Check My Work

The hypothesis is that the mean BMI of the students is lower than 24.

A. What is the right set of null and alternative hypotheses?

B. What's the p-value for this test to FOUR decimals ? (Note: check if the above test is one-sided or two-sided first)

C. At significance level 5%, we can reject the null hypothesis and claim that the mean BMI is less than 24 for the student population of interest. True or False?

how does doing bussiness in Brazil different from canada?
what if any, are the obvious competitive advantages to production in Brazil, describe this competitive advantage fully.