Tuesday, November 15, 2011

Bayer v. Beran case brief

Bayer v. Beran
49 N.Y.S.2d 2 (N.Y.Sup.Ct. 1944)

FACTS 
-Celanese (Corporation) spent $100k a year to advertise on a classical music radio show.
-One of the singers on the radio show was a woman named Tennyson, who coincidentally happened to be married to Celanese's director, a guy named Dreyfus.
-Bayer, a stockholder, sued Dreyfus because he felt that the expenses were inappropriate and that hurt the company, and therefore the value of his stock (Derivative shareholder's suit)

PROCEDURAL HISTORY
-The Trial Court found for Dreyfus, stated that directors (such as Dreyfus) were not 'trustees', and so were not strictly accountable for business decisions, but they did have some level of accountability.

RULES
Business Judgment Rule
1.  Questions of policy of management, expediency of contracts or action, adequacy of consideration, lawful appropriation of corporate funds to advance corporate interests, are left solely to decision of directors, and
2.  The exercise of their decision may not be questioned although the results show that what directors did was unwise or inexpedient.

ANALYSIS
The Court stated that it was not really a wise decision for Dreyfus to be wasting money supporting his wife's career. However, as long as "negligence, waste or improvidence" do not exist, the courts should not second guess the director's decisions.
-As long as the expense isn't reckless or unconscionable, it isn't a breach of fiduciary duty.
-Here the advertising served a legitimate and useful corporate purpose and the company received the full benefits of the advertising.
-They were not paying a premium to advertise on the show, instead they were paying the going rate.

FURTHER NOTES
-Under modern corporate law, the duties of corporate officers have been split into a duty to care and a duty of loyalty.
-In this case, Dreyfus was probably not guilty of violating the duty to care, however his conflict of interest may have been considered a violation of his duty of loyalty.

Course: Corporations.
Subjects: Duty of Care, Duty of Loyalty, Business Judgement Rule, Derivative Litigation.

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