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J.D., Temple University - 2000 B.S. Finance, Drexel University - 1996 www.triallawmiami.com COURSE OVERVIEW Fiduciary duties How they are formed To whom they are owed Ethical implications www.triallawmiami.com GOALS Describe the flow of rights. Identify which fiduciary duties apply. Discuss operating agreement clauses which limits duties. Draft a complaint that vindicates your client’s rights. Navigate the ethical midfield of corporate relationships. www.triallawmiami.com PLEASE ASK QUESTIONS www.triallawmiami.com FIDUCIARY DUTIES fiduciarius www.triallawmiami.com HISTORICAL BACKGROUND Bailiffs Executors Trustees HISTORICAL BACKGROUND Uses ~ usus TRUSTS • Trustee • Fiduciary duty ROYAL CHARTER COMPANIES • 1407 Company of Merchant Adventurers of London • 1553 Company of Merchant Adventurers to New Lands • 1555 Muscovy Company • 1577 Spanish Company • 1579 Eastland Company • 1581 Turkey Company • 1588 Morocco Company • 1600 East India Company • 1604 New River Company • 1605 Levant Company • 1606 Virginia Company • 1609 French Company • 1610 London and Bristol Company • 1616 Somers Isles Company • 1629 Massachusetts Bay Company • 1629 Providence Island Company • 1664–1674 Royal West Indian Company • 1670 Hudson's Bay Company • 1672 Royal African Company • 1693 Greenland Company www.triallawmiami.com ENGLISH LEGISLATION 1720 ~ Bubble Act 1855 ~ Limited Liability Act 1856 ~ Joint Stock Company Act www.triallawmiami.com AMERICAN LEGISLATION 1791 ~ First Bank of the United States 1811 ~ New York - Act Relative to Incorporations for Manufacturing Purposes of 1811 1896 ~ New Jersey - General Corporation Act of New Jersey 1899 ~ Delaware - General Corporation Act of Delaware www.triallawmiami.com AMERICAN FIDUCIARY DUTIES Directors of a business corporation are not trustees and are not held to strict accountability as such. Nevertheless, their obligations are analogous to those of trustees. Directors are agents; they are fiduciaries. The fiduciary has two paramount obligations: responsibility and loyalty. Those obligations apply with equal force to the humblest agent or broker and to the director of a great and powerful corporation. They lie at the very foundation of our whole system of free private enterprise and are as fresh and significant today as when they were formulated decades ago. The responsibility—that is, the care and the diligence—required of an agent or of a fiduciary, is proportioned to the occasion. It is a concept that has, and necessarily so, a wide penumbra of meaning—a concept, however, which becomes sharpened in its practical application to the given facts of a situation.The concept of loyalty, of constant, unqualified fidelity, has a definite and precise meaning. The fiduciary must subordinate his individual and private interests to his duty to the corporation whenever the two conflict. Bayer v. Beran, 49 N.Y.S.2d 2, 5 (Sup. Ct. 1944) DELAWARE’S DOMINANCE www.triallawmiami.com CORPORATIONS Share holders Shareholders Directors Officers Board of Directors Officers President Treasurer INK, Inc. Share holders CORPORATE SHIELD DOCTRINE Board of Directors Officers Treasurer INK, Inc. PERSONAL LIABILITY www.triallawmiami.com COMMON LAW FIDUCIARY DUTIES IN THE U.S. Loyalty Care Good Faith Disclosure www.triallawmiami.com MODEL BUSINESS CORPORATIONS ACT § 8.30 General Standards for Directors (a) A director shall discharge his duties as Share holders a director, including his duties as a member of a committee: (1) in good faith; (2) with the care an ordinarily prudent Board of Directors person in a like position would exercise under similar circumstances; and (3) in a manner he reasonably believes to be in the best interests of the INK, Inc. corporation. MODEL BUSINESS CORPORATIONS ACT 8.42 Standards of Conduct for Officers (a) An officer with discretionary authority shall discharge his duties under that Officers authority: (1) in good faith; President Treasurer (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) in a manner he reasonably believes INK, Inc. to be in the best interests of the corporation. DELAWARE Share holders Care Loyalty Board of Directors Good Faith Cede & Co. v. Technicolor, Inc., INK, Inc. www.triallawmiami.com DELAWARE Share holders Officers owe the same duties as directors. Gantler v. Stephens, 965 A.2d 695 (Del. 2009) Officers Care President Treasurer Loyalty INK, Inc. www.triallawmiami.com Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135 (Del. 1997) www.triallawmiami.com DUTY OF LOYALTY Prohibition against self-dealing, and To act in the best interest of the company. www.triallawmiami.com DUTY OF LOYALTY 1. To account to the company and