Opel Austria GMBH v. Council case brief

Opel Austria GMBH v. Council
Case T-115/94, [1997] ECR II-39

FACTS
-Duty imposed on gearboxes produced by General Motors in Austria. Imposed to offset certain state aids extended by Austria to GM.

-Regulation adopted on basis of common commercial policy power and 1972 Council regulation on imposition of safeguards provided for in Austria-EC free trade agreement (FTA).

-FTA agreement superseded by EEA agreement.

ISSUE
→ P claims: EEA agreement was part of the factual and legal situation existing at time when regulation adopted. By adopting regulation a few days before EEA agreement entered into force, Council infringed on principle of good faith.

RULES
According to the principle, pending the entry into force of an international agreement, signatories to an international agreement may not adopt measures which would defeat its object and purpose.

Rule (State is obliged to refrain from acts which would defeat the object of a treaty...p. 1115)

ANALYSIS

-Court asks if EEA has direct effect:
Provisions of such an agreement may have direct affect if they are unconditional and sufficiently precise.
-EEA agreement states customs duties on imports/exports and any charges having equivalent effect are prohibited between contracting parties.
Here the rule is unconditional and precise.
-Any pecuniary charge, however small and whatever its designation and mode of application, which is imposed unilaterally on domestic or foreign goods by reason of the fact that they cross a frontier, and which is not a customs duty in the strict sense, constitutes a charge having equivalent effect within the meaning of articles 31 and 38 TFEU, even if it is not imposed for the benefit of the state, is not discriminatory or protective in effect or if the product on which the charge is imposed is not in competition with any domestic product.

HOLDING
-Court holds by adopting the contested regulation in the period in question, the P's legitimate expectations were frustrated.

Van Gemert v. Boeing Co. case brief

Van Gemert v. Boeing Co.
United States Court of Appeals, Second Circuit, 1975.
520 F.2d 1373, cert. denied, 423 U.S. 947 (1975)

FACTS
-Class action brought by non-converting holders of Boeing's convertible subordinated debentures.
Complaint: P had inadequate and unreasonable notice of Boeing’s intention to redeem or “call” convertible debentures in question and were unable to exercise their conversion rights before the deadline in the call.  
$3.25 premium only → were supposed to give notice (only gave notice in paper -small print: CLD used which meant “call”, investors did not know - mandatory call)
-Would get $316 if called.

ISSUE
Was Boeing’s notice adequate?
Held: No, notice was not adequate.
-News release did not provide information as to the conversion rate or expiration time as required by NYSE rules.
-Boeing made no attempt to mail notice to the original subscribers (would have been nominal)
-Boeing notice had 2 deficiencies:
1) Boeing did not adequately apprise the debenture holders what notice would be given of a redemption call.
2) Newspaper notice given by Boeing was in itself inadequate.

ANALYSIS
-If you register debt with a company, would have got a letter in the mail, if you call, will convert → company can’t object.  Debenture notice, however, did not indicate that registration would mean that debenture holder would receive mail notice.
-No indication of extent to newspaper notice or what newspapers would be used, or how often notice would be published.
-Notice of the call is a primary basis of the deal.

Duty of Reasonable Notice
-arises out of the contract between D and debenture holders.
-An issuer of debentures has a duty to give adequate notice either on the face of the debentures or in some other way, of the notice to be provided in the extent the company decides to redeem the debentures.
-Court looks at “less sophisticated investors”, states: putting notice provisions only in 113 page indenture agreement was in effect no notice at all.

-What one buys when purchasing a convertible debenture in addition to the debt obligation of the company incurred thereby is principally the expectation that the stock will increase sufficiently in value that the conversion right will make the debenture worth more than the debt.
-Debenture holder relies on the opportunity to make a proper conversion on due notice.
-The debenture holder’s expectancy is that he will receive reasonable notice and it is his reliance on this expectancy that the courts will protect.

Rothschild International Corporation v. Liggett Group Inc. case brief, 474 A.2d. 133

Rothschild International Corporation v. Liggett Group Inc.Supreme Court of Delaware, 1984.
474 A.2d. 133.

(Liquidation)

FACTS
-Owners of 7% cumulative preferred stock in D filed suit arising out of a combined tender offer and reverse cash-out merger whereby the interests of the 7% preferred shareholders were eliminated for a price of $70/share, amount $30 below liquidation preference stated in D’s certificate of incorporation.
-Claim for breach of k and breach of fiduciary duty.
-P contends that takeover of D via combined tender offer and merger in essence effected a liquidation of the company which warranted payment to the holders of the 7% preferred stock of the $100 liquidation preference set out in the charter.
D: GM’s plan on acquisition was equivalent to a liquidation. (court disagrees)

RULES
-Preferential rights are contractual in nature and governed by the express provisions of a company’s certificate of incorporation.  Stock preferences must also be clearly expressed and will not be presumed.Liquidation: means winding up of the affairs of the corporation by getting in its assets, settling with creditors and debtors and apportioning the amount of profit and loss.

ISSUE: Was there a liquidation here?
HOLDING: No, there was no liquidation of D within the well defined meaning of the term.
ANALYSIS
-Court states that D retained its corporate identity.
-Having elected this plan of reorganization, parties had the right to avail themselves of the most effective means of achieving the result, subject on to their duty to deal fairly with the minority interests.
-Only upon liquidation of its assets would D’s pref. shareholders’ charter rights to payment of par value spring into being.
-Merger does not equal liquidation.
-Minority stock interests may be eliminated by merger.
-Stockholders are charged with knowledge of this possibility at the time they acquire their shares.
P Argues “Breach of Fiduciary Duty”
-the stockholder is entitled to be paid for that which has been taken from him, viz., his proportionate interest in a going concern.  Fair value is not liquidation value.
-Shareholders were entitled only to an amount equal to their proportionate interests in D as determined by all relevant factors.

Dalton v. American Investment Co. case brief, 490 A.2d 574

Dalton v. American Investment Co.
Delaware Court of Chancery, 1985.
490 A.2d 574.
 
FACTS
-Acquisition of AIC by subsidiary of Leucadia.  
-AIC had 5.5M common shares outstanding and 2 issues of preferred.  
-P held noncallable 5.5 percent series B having a stated redemption and liquidation value of $25.
-Increases in interest rates: stock, which had no trading market, had market value of less than $9/share at this time.
-Prior to Leucadia, “HFC” had offered to acquire America by offering $12 per common and $25 per preferred.  The justice department objected based on antitrust grounds       
-P alleges that Board of Directors (BoD) took the HFC offer and used it as a “basis” for Leucadia offer for common and in doing so kept wanted to leave preferred holders stuck.

ANALYSIS
-P contends that failure of BoD to treat interest of preferred evenly with interest of common stock damaged preferred by leaving them as minority Shareholder in a de-listed corp as owners of unmarketable preferred.
-That BoD knowingly acted in a way as to lock preferred in when BoD had a fiduciary duty of fair dealing to extricate preferred at a fair price as well.
-BoD answers: L viewed preferred as cheap debt and that L knew it could acquire American w/out purchasing the preferred leaving BoD w/ no leverage. That any attempt of BoD to attempt and persuade L to reduce offer to common and use difference to cash out preferred could have led to them facing suit for breach of fiduciary duty owed to common. (L could have also simply viewed it as weakness and cut offer for common and still ignored preferred).

RULE
-It is improper for those in a fiduciary position to utilize the merger process solely to promote the interests of one class of shareholders to the detriment, and at the expense, of the members of a minority class of shareholders.

RESULT
-Court ultimately found against plaintiffs finding that L’s offer was based on L’s business interest and had not been made result of a solicitation by American’s BoD.

Eisenberg v. Chicago Milwaukee Corp. case brief, 537 A.2d 1051.

Eisenberg v. Chicago Milwaukee Corp.
Delaware Court of Chancery, 1987.
537 A.2d 1051.

(Company declines to pay dividends on preferred stock, threatens to de-list, coercive)

FACTS
-D sold off most of its business and held approximately $300M in cash and real estate valued at $90M while it sought new business(es).
-Outstanding approx. 2.5M shares of common stock, 464K of noncumulative preferred stock with annual dividend preference of $5/share.
-Company declined to pay dividends on preferred during years in which it sought new line of business.
-Pref. stockholders elected 2/10 directors.  8/10 and affiliates owned no preferred, but owned 41% common.
-Pref. stock dropped from 80.25 to low of 41.50.  Directors decided to take advantage of sharp price decline, caused company to make tender offer for its pref. stock at $55/share and announced co. would delist pref. stock.
-Holders of Pref. stock sought to enjoin tender offer on basis of:
1) Tender solicitation materials were misleading in failing to disclose conflict of interest of common stock directors and purpose to take advantage of price drop, and
2) Tender offer was improperly coercive.
Court found:
1) Directors owed preferred the ‘exacting duty of disclosure imposed upon corporate fiduciaries’ and found that duty not to be met.
Analysis (2)
P Argued Coercive b/c
1) purposely timed to coincide with lowest market price for Preferred since 1983.
2) offer occurs against background of an announced board policy of not paying dividends, despite CMS’s present ability to do so.
3) CMC has announced that it intends to seek the de-listing of preferred shares.

-Given the circumstances, Pref. stockholders may perceive that unless they tender, they might not realize any return on or value for their investment in the foreseeable future.

ISSUE
-In what sense do corporate directors behave inequitably if they cause the corporation to offer to purchase its own publicly held shares at a premium above market, even if the market price is at a historic low?

HOLDING
-Court says the issue here is that D has told Pref. stockholders that CMC intends to request de-listing of the shares from NYSE.
-CMC’s directors are fiduciaries for the Pref. stockholders, have an duty to safeguard their interests, consistent with the fiduciary duties owed by those directors to CMC’s other shareholders and CMC itself.
-NYCE listing is a valuable attribute of pref. stock, elimination will adversely affect the interests of non-tendering preferred shareholders.
-Coercive: apparent purpose of such a disclosure would be to induce shareholders to tender by converting a possibility of de-listing into a likelihood or certainty.

Metropolitan Life Insurance Company v. RJR Nabisco, Inc. case brief

Metropolitan Life Insurance Company v. RJR Nabisco, Inc.
United States District Court, Southern District of New York, 1989
716 F.Supp. 1504.

-Leveraged Buyout, Bond Market, Experienced Investors.

FACTS
-In late 1988 CEO, Johnson, of RJR Nabisco proposed a Leveraged Buy-out (LBO) of the company’s shareholders, at $75/share.
-Bidding war broke out, Johnson (CEO) v. KKR.  Committee formed to consider competing proposals.  
-KKR LBO won at $24b, purchase of stock at $109/share.
-P allege that D’s actions drastically impaired value of their bonds, which were previously issued to P because of a misapportionment of the value of the bonds to help finance the LBO and distribute a windfall to company’s shareholders.

HOLDING
-Court agreed w/ D that no express covenant existed to restrict new debt and court will not imply one.

ANALYSIS
-The court stated that underwriters ordinarily negotiate the terms of indentures with issuers.
-P’s were sophisticated investors, they were well aware of the indenture terms, and are presumed to review them carefully before lending to the company.
-Court gets into the background stuff: the prospectus for the indentures contained a statement that “no restrictions on creation of unsecured short-term debt”, court noted that at one point some of the Nabisco bonds that Met Life held did include covenants that Met Life negotiated away. Met Life had circulated an internal memo discussing risks involved w/ absence of business covenants.
Court stressed that sophisticated investor like Met Life can’t plead ignorance to market-risks:
1)  Parol Evidence Rule bars P from arguing that speeches made by D executives prove D agreed or assented to term that does not appear in the indenture K’s
2)  Indenture language needs to be determined as a matter of law.  (see Sharon Steel)

Court looks at argument for an “implied covenant of good faith”
→ A P can always allege a violation of an express covenant.
-Implied covenants in circumstances where express terms may not have been technically breached but one party has still deprived the other party of some express bargained for benefit.
-Courts will thus read an implied covenant of good faith and fair dealing to ensure neither party deprives the other of the “fruit of the agreement”.
-The implied covenant of good faith is breached only when one party seeks to prevent the contract’s performance or to withhold its benefits.

→ In bond indentures: an “implied covenant” cannot give bondholders any rights inconsistent w/ those rights set out in the bond agreement.
-Where P’s contractual rights have not been violated, there can have been no breach of an implied covenant.
-Court looks at Van Gemert (below), states that courts use the implied covenant of good faith and fair dealing to ensure that the bondholders received the benefit of their bargain as determined from the face of the contracts at issue.
-Van Gemert involved less sophisticated investors.

Analysis requires that:
1) Examine the indenture to determine the fruits of the agreement between the parties.
2) Decide whether those fruits have been spoiled, i.e., whether P’s contractual rights have been violated by D.

Long Term Debt: holder ordinarily has not bargained for and does not expect any substantial gain in the value of the security to compensate for risk of loss.
-Fact which accounts in part for the detailed protective provisions in typical long-term debt financing instrument, is that the lender (purchaser of debt) can expect only interest at the prescribed rate plus the eventual return of principal

-Looking to indentures court determines what specific fruits are, and that P does not allege a breach of any of these.  Further holds that “fruits” do not include an implied covenant preventing new debt.
-Court will use implied covenant to ensure bargained for rights are performed and upheld it will not use it to shoehorn in a right that a party now wishes to have included

Discussed market expectations that term of indenture will be upheld and that courts will not add new substantive terms.  
-To respond to changed market forces, new indenture provisions can be negotiated.   No guarantee that companies such as RJR will accept new covenants, but parties retain freedom to enter into k’s as they choose.
“Promise by D should be implied only if court may rightfully assume that parties would have included it in their written agreement had their attention been called to it”-Final analysis on “implied covenant” argument is that courts should be reluctant to imply terms into an integrated agreement governed by specific and explicit provisions where parties are sophisticated investors versed in market assumption and not in a fiduciary relationship w/ the other

Sharon Steel Corp. v. The Chase Manhattan Bank, N.A. case brief

Sharon Steel Corp. v. The Chase Manhattan Bank, N.A.
United States Court of Appeals for the Second Circuit, 1982.
691 F.2d 1039, cert. denied, 460 U.s. 1012, 103 S.Ct. 1253, 75 L.Ed.2d 482 (1983)

Judicial Interpretation of Covenants - Successor Obligor Provision
FACTS
-UV had $155M of long term debt outstanding pursuant to five separate indentures.
-Each indenture provided for redemption at a premium prior to maturity, and contained a Successor Obligor provision allowing UV to assign its debt to a corporate successor which purchased “all or substantially all” of UV’s assets.
-UV owned 3 lines of businesses.
    1.  Federal Electric: 61% revenues, 81% profits, 44% book value assets
    2.  Oil and Gas: 2% revenues, 6% profits, 5% book value.
    3.  Mueller Brass: 38% revenues, 13% profits, 34% book value.
1979- UV submitted to shareholders plan to sell (1. Federal) for $345M and within 12 months sell rest of assets and liquidate.
→ Shareholders approved plan, and sale consummated by end of March.
-UV contracted to sell (2. oil and gas) for $135M in July.  
-UV made $18/share dividend to shareholders in April, after agreeing w/ trustees of bonds to set aside $155M to pay down bonds.
-November: UV changed course, entered into asset purchase agreement with Sharon Steel (P), to which P would purchase rest of UV’s assets (3. Mueller Brass) and $322 in cash, in exchange for $107M cash and $411M face amount of debentures.
→ Sale to P included agreement that P would assume UV’s liabilities including obligations outstanding under indentures.
-Sharon and UV took position that Sharon was purchasing all or substantially all of UV’s assets within the meaning of the Successor Obligor Clause.
-Executed supplemental indentures provided for and tendered them to trustees, trustees refused to sign and brought action for redemption of debentures.
 
ISSUE
-Was the asset purchase agreement with Sharon Steel for the purchase of the rest of UV’s assets a sale of “all or substantially all” of UV’s assets within the meaning of the Successor Obligor Clause?
 
HOLDING
No, here it was not ‘all or substantially all” of UV’s assets.  
-Boilerplate successor obligor clauses do not permit assignment of the public debt to another party in the course of litigation unless “all or substantially all” of the assets of the company at the time the plan of liquidation is determined upon are transferred to a single purchaser.

ANALYSIS
-Here the court is dealing with a boilerplate provision.
-Court says that the creation of enduring uncertainties as to the meaning of boilerplate provisions would decrease the value of all debenture issues and greatly impair the efficient working of capital markets.
-Re: Long Term Debt Financing: the rights of holders of the debt securities are largely a matter of contract.  
-There is no governing body of statutory or common law that protects the holder of unsecured debt securities against harmful acts by the debtor except in the most extreme situations.
-The debt security holder can do nothing to protect himself against actions of the borrower which jeopardize its ability to pay the debt unless he establishes his right through contractual provisions set forth in the indenture.
-One purpose of the successor obligor clause was to insure that the principal operating assets of a borrower are available for satisfaction of the debt.
-Court also says that the redemption premium must be paid.

---Further Notes---
-Here the debt was paying a low rate.  UV wants to have the rate.
-If the debt was expensive, UV would probably want to pay it off.
Issue:  Did UV property assign the debt obligations to Sharon Steel?  No.
-Sharon did not satisfy the elements to be considered a success obligor, and therefore UV could not assign its debentures to Sharon.

Courts Analysis
-Clauses like “successor obligor clause” are boilerplate and must be given a consistent and uniform interpretation.
-Their interpretation is a matter of law rather than fact.
-Should be interpreted in a way that balances the rights of all interested parties.
-Uniformity in interpretation is important to efficiency of capital markets.
-A uniform interpretation allows market participants to adjust their affairs according to uniform interpretations.

-Looks to actual clause and its plain language (standardized) meaning.
-Holds that clauses provide a level of protection for both borrowers and lenders.
-Borrower is able to sell and liquidate; merge; or sell assets (including debenture liability) and enter new field free of debt; Lender is assured a degree of continuity.
-In interpreting boilerplate “successor obligor clause” it determine that clause does not permit the assignment of public debt to another party in course of liquidation unless “all or substantially all” assets of company at time of liquidation plan are transferred to single purchaser.
           Not the Case here - only 51% being transferred to P.
Court:  UV is in default and the debentures are due and payable.

In Re LTV Steel Company, Inc. case brief

In Re LTV Steel Company, Inc.
United States Bankruptcy Court, N.D. Ohio, 2001.
37 Bankr.Ct.Dec. 137.
Bankruptcy Risks - Company wants to use cash collateral.

FACTS
-Debtor, large steel corporation, filed for Chapter 11 for second time in 2000.  
-Debtor created a wholly owned subsidiary known as Sales Finance (SF) for purpose of conducting asset-backed securitizations or structured finance (ABS agreement).
-Abbey, large financial institution, entered into an ABS transaction in 1994.  To effectuate this agreement, Debtor entered into an agreement with SF which purports to sell all of Debtor’s rights and interest in its account receivables to SF on continuing basis.
-Abbey agreed to loan $270M to SF in exchange for SF granting Abbey a security interest in the receivables.  Chase Manhattan was Abbey’s agent for the transaction.
-LTV Steel Products “SP”, another wholly owned subsidiary, entered into a $30M securitization of LTV’s inventories with a group of banks led by Chase.
-Neither SF nor SP is a debtor here.
-Debtor filed motion permitting it to use cash collateral.  Consisted of receivables and inventory that are ostensibly owned by SF and SP.  
-Debtor stated that it would be forced to shut its doors/cease operations if it did not receive authorization to use this cash collateral.
  
ISSUE
-Abbey asks court to modify the cash collateral order.
-Abbey: receivables which constituted the collateral are not property of Debtor’s estate, and the court lacked jurisdiction.

HOLDING
-Court does not modify the cash order, granting Abbey relief from the order would be highly inequitable.
-Court says debtor should keep its doors open and continue to meet its obligations to employees, retirees, customers and creditors.
 
RULES
-Upon the filing of bankruptcy petition an estate is created consisting of all legal or equitable interests of the debtor in property as of the commencement of the case.
-Property may be included in Debtor’s estate even if Debtor does not have a possessory interest in that property.
 
ANALYSIS
-Maintaining status quo would allow debtor to remain in business while it searches for substitute financing, and would adequately preserve Abbey’s rights.

Caiola v. Citibank, N.A. case brief, 295 F.3d 312.

Caiola v. Citibank, N.A.
United States Court of Appeals for the Second Circuit, 2002.
295 F.3d 312.

(Equity Swap Case, don’t care about law)
-Dodd Frank changed this case, situation here no longer true today.
FACTS
P buying shares of Philip Morris, agreed with bank to do ‘synthetic trading’.
-Borrowing to buy; P was concerned with “footprints”.  He didn’t want people to copy his strategies.

ANALYSIS
A synthetic transaction is typically a contractual agreement between two counterparties, usually an investor and a bank, that seeks to economically replicate the ownership and physical trading of shares and options.
-P makes periodic interest payments on the notional value of a stock position and also payments equal to any decrease in value of the shares upon which the notional value is based.
-Citibank pays any increase in the value of the shares and any dividends, also based on the same notional value.
    -Citibank: worried about stock increases, puts them at significant risks.Delta Hedging: Makes a derivative position, such as an option position, immune to small changes in the price of an underlying asset, such as a stock, over a short period of time.
→ How would Citibank hedge the risk?
-Buy the physical stock as a hedge.  However, would leave a footprint.
-They would get interest on the loan still if the stock goes up, but have physical stock.
P → Citibank: hedge a different way.  Buy underlying assets in limited amounts instead.

Tri-Continental Corp. v. Battye case brief, 74 A.2d 71.

Tri-Continental Corp. v. Battye
Supreme Court of Delaware, 1950.
74 A.2d 71.

FACTS
-General merged into parent company, P.  
-Certain common stockholders of General objected to the terms of merger and registered their objection.
-Shareholders were determined to be entitled to appraisal.
-Appraisal set General stock at $4.62/share, P appealed.

RULES
Upon the merger of a corporation, stockholders who object to the merger and who fulfill the statutory requirements to register their objection shall be paid the value of their stock on the date of the merger, exclusive of any element of value arising from the expectation or accomplishment of the merger.

ANALYSIS
-Court looks to determine the meaning of “value”.
-Stockholder is entitled to be paid for that which has been taken from him, his proportionate interest in a going concern.
-This is the true or intrinsic value of his stock which has been taken by the merger.
-Must take into consideration all factors and elements which reasonably might enter into the fixing of value. (must consider all elements)
1) market value, 2) asset value, 3) dividends, 4) earning prospects, 5) nature of the enterprise and any other facts which were known or could be ascertained as of the date of the merger.

General = regulated CLOSED-END investment company with leverage, was engaged in investing in the stock market generally seeking to acquire and hold a cross section of the market.
-Common stockholder of a closed-end company has no right at any time to demand of the company his proportionate share of the company’s assets.
-A regulated investment company is required to distribute all of its income from dividends and interest to its stockholders but, in doing so, pays no tax on amounts distributed.
Leverage
-Since debentures and preferred stock of General were a fixed liability, the same amount of assets at all times was required to be set off against them.
-If stock market declines: decreases the value of General’s assets, all decrease falls upon the common stock.
-If stock market rises: increases value of General’s assets, all increase accrued to benefit of common stock.
-When market price of common stock moves into certain price range in relation to net asset value, upward leverage disappears and stock sells on market at lower price than net asset value.
-Difference between net asset value and market value of common stock in closed-end investment company is known as discount.

Here, discount was brought into play.
Net Asset Value - a mathematical figure representing the total value of the assets of General less the prior claims. (A liquidating value)
-Could be determined as of any date by computing total market value of securities in portfolio, adding to that the sum of cash in company’s possession, deducting total of outstanding liabilities, debentures and preferred stock, and dividing final result by number of common shares outstanding.
[Court refuses to fix value of stock to net asset value here]
-A theoretical liquidating value to which the share would be entitled upon the company going out of business.
-Common stockholder can not withdraw his proportionate share of closed-end investment co. as long as it is a going concern.
-The dissenting stockholder is entitled to receive the intrinsic value of his share in a going concern.
→ This means he is entitled to receive that sum which represents the amount he would have received as a stockholder in one way or another as long as the company continued in business.
→ The only way in which a common stockholder of a going closed-end co. with leverage can obtain the value of his stock is by the same of it on the market.

Cede & Co. v. Technicolor, Inc. case brief

Cede & Co. v. Technicolor, Inc.
Court of Chancery of Delaware, 1990.

1990 WL 161084 (Del.Ch.).

FACTS:
Appraisal Action concerning friendly merger of Technicolor into a shell corporation.

Analysis:
-An appraisal action is a judicial, not inquisitorial proceeding.
    Parties, not the court, establish the record and the court is limited by record.
-Court must look at the models created by the expert, can not create a completely independent judicial model.CAPM Model
-Estimates the cost of debt (on an after tax basis for a company expected to be able to utilize the tax deductibility of interest payments) by estimating the future cost of borrowing; it estimates the future cost of equity through a multi-factor equation and then proportionately weighs and combines the cost of equity and the cost of debt to determine the cost of capital.
-Used widely to estimate a firm’s cost of equity capital.
-Identifies a risk-free rate for money and identifies a risk premium that would be demanded for investment in the particular enterprise in issue.
-Risk free rate: derived from gov’t treasury obligations.

For a traded security, market risk premium derived in 2 steps.
1) market risk premium calculated: expected rate of return for representative stock market index minus riskless rate.
2) Individual company’s systematic risk (non-diversified risk associated with the economy as a whole as it affects the firm) is eliminated.
    -This is the CAPM, represented by Beta
-Beta measures relative volatility of firm’s stock price relative to market movement generally.
-Higher Beta = the more volatile or risky the stock of the subject company.
-The riskier the investment, the higher its costs of capital will be.
CAPM cannot determine a uniquely correct cost of equity.
-Generally considered acceptable for estimating the cost of equity capital component of a discounted cash flow modeling in the financial community.

-Small Capitalization effect or premium.
-Court says that although Technicolor may qualify as a small cap company, the particulars of this situation are different than many small cap companies.
Looks at:
1) old, not new company.
2) existed in a stable industry (motion pictures)
3) Industry was an oligopoly, technicolor was a leader.
4) “brand name” identification.
-Technicolor should not get the premium.

City of Minneapolis v. Altimus case brief, 238 N.W.2d 851 (1976)

City of Minneapolis v. Altimus

238 N.W.2d 851 (1976) 

FACTS

-Defendant was involved in a hit and run accident. Jury found him guilty of careless driving and of a hit and run.

-D argues that the trial judge erred by not instructing the jury on the defense of involuntary intoxication.  --

-D claims that his doctor prescribed to him Valium to cure his back pain and after he took it, the medicine started to have strange effects on him (D) and at the time of the accident, he was under its effects.

ISSUE
Did the trial court err by not instructing the jury on the defense of involuntary intoxication?

HOLDING
Yes: the jury should have been instructed on the defense of involuntary intoxication.

RULE
There are 4 kinds of involuntary intoxication:

1. coerced intoxication
2. pathological intoxication
3. intoxication by innocent mistake
4. intoxication resulting from ingestion of a medically prescribed drug

For intoxication resulting from prescribed drug, the defendant must meet 3 elements:

1. The defendant must not know, or have a reason to know, that the drug will have such effects on him.
2. The prescribed drug is the cause of the intoxication and not the cause of something else.
3. The defendant due to this intoxication is temporarily insane.

ANALYSIS
A jury has to decide whether these 3 elements are met and the defendant in the current case should have had the instruction of involuntary intoxication.

Link to Case: City of Minneapolis v. Altimus

Chimel v. California case brief, 395 U.S. 752 (1969)

Chimel v. California
395 U.S. 752 (1969)

Procedural history:

      D appealed decision from the Supreme Court of California, affirming judgments of conviction for burglary from the lower court.

Facts:
-Chimel (D), the arrested coin stealer, argued that the warrantless search of all rooms in his home, right after arresting him with a warrant, including the searching of desk drawers and other closed or concealed areas of the home was unreasonable, and therefore violated his Fourth Amendment rights.

-Three police officers came to Chimel's (D) house with a warrant for his arrest in connection with a robbery of a coin shop. D was arrested. Despite the fact that the officers did not have a search warrant, they asked D for permission to "look around."

-D did not consent, but the officers informed him of their intent to search his home "on the basis of the lawful arrest." D's entire house, including an attic and garage, were searched. In two rooms of the house, the officers asked D's wife to open drawers, where the evidence upon which D was convicted was found.

Issue:

-Whether a warrantless search of a person’s house violates the 4^th amendment when the person was lawfully arrested with a warrant.

Procedural Result:

-Judgment reversed.

Holding:

-A warrantless search of a person’s house violates the 4^th amendment when the person was lawfully arrested with a warrant, BUT only once the search reaches beyond the area from which the arrested person could obtain a weapon or evidence.

Reasoning:

• A warrantless search incident to arrest is unconstitutional if it is beyond the arrested suspect's person and the area from which he could obtain a weapon or evidence.
• The general rule allowing warrantless search of the person of an arrestee and of the area "within his control" is based upon a policy judgment.
• The reasons behind this choice was that police officers have an interest in protecting themselves against violence and that the State has an interest in the preservation of evidence for trial.
• However, searches beyond this limited scope are unconstitutional.
• Otherwise, it would lead to the absurd conclusion that one's papers are safe only so long as one is not at home.
• The privacy interest in one's home is more important than the law enforcement interest in expedient searches for evidence.
• Thus, Rabinowitz and Harris are overturned.

Dissent:

-If probable cause to arrest in the home with a warrant was present, the ability to search the rest of the home without a warrant should exist, since the arrest itself supplies the exigent circumstances to do so.

Bjorndal v. Weitman case brief, 184 P.3d 1115 (2008)

Bjorndal v. Weitman
184 P.3d 1115 (2008)

•    Standard of reasonable care.


Procedural History
•    Plaintiff (leading) brought a negligence suit against defendant (following driver), seeking damages for her injuries and medical expenses arising out of their automobile collision. The following driver’s request that the “emergency instruction” under Or. Unif. Jury Instructions Civ. 20.08 be given was granted, and the jury returned a special verdict in favor of the following driver. The leading driver sought review.

Issue
•    is the “emergency instruction” an appropriate test in tort/negligence?

Rule
•    No, The usual instruction on negligence sufficiently covers what a reasonably prudent person would do under all circumstances, including those of sudden emergency.

Application
•    The existence of “emergency” circumstances in vehicle accident cases (sudden actions by other drivers, unexpected weather events, roadway hazards) is indisputably appropriate for a jury to consider in determining whether a person has used reasonable care in attempting to avoid harming others. The negligence standard focuses on whether a person acted with reasonable care to avoid harm to others, in light of all the circumstances, including any “emergency.”
•    The emergency instruction, as used in vehicle accident cases, misstates the law of negligence by introducing an inquiry respecting whether a person has made the “wisest choice,” rather than focusing on whether the person used reasonable care, given all the circumstances. Because the instruction misstates the law, it should not be given.
•    To be sure, the reasonable care standard does not always require a defendant to make the “wisest choice.” But neither does it mean that a defendant was “not negligent” simply because the defendant’s “unwise choice” was made in the context of an emergency.
•    The general negligence standard embodied in Uniform Civil Jury Instruction 20.02 encompasses any legitimate concerns about “emergency” circumstances, without introducing misleading concepts of the extent to which a “choice” available to the person was “unwise,” “wise,” “wiser,” or “wisest.”

Holding
•    The rulings of the appellate court and the trial court were reversed and the case was remanded to the trial court for further proceedings.
Court’s Reasoning/Rationale/Policy
•    The court wanted to get rid of that test because it allowed the jury to favor those who didn’t make a “wise choice” etc.

Stewart v. Motts case brief, 654 A.2d 535 (1995)

Stewart v. Motts
654 A.2d 535 (1995)

The "Prudent Person" Standard

PROCEDURAL HISTORY
Appellant sought review of decision of Pennsylvania Superior Court which affirmed a judgement in favor of appellee in appellant's negligence action seeking damages for personal injuries.

FACTS
The appellant was seriously burned while assisting appellee with the repair of an automobile fuel tank.

ISSUE
-Under the reasonable care standard must the level of care be proportionate to the danger involved?

RULE
-Under the reasonable care standard the level of care must be proportionate to the danger involved

APPLICATION
• The acceptable standard of care is “reasonable care” as well stated in the Restatement (Second) of Torts: The care required is always reasonable care. The standard never varies, but the care which it is reasonable to require of the actor varies with the danger involved in his act and is proportionate to it.
• The greater the danger, the greater the care which must be exercised

HOLDING
• The court affirmed the judgment in favor of appellee finding that it was not error to refuse to instruct the jury that extraordinary care was required when using gasoline, a dangerous substance, because the only standard of care available under the law was reasonable care under the circumstances, and that the jury was properly instructed that the care required was that which a reasonable man would exercise in proportion to the danger involved.

Link to Case:   Stewart v. Motts, 654 A.2d 535 (1995)

Legality of Use of Force (Serbia & Montenegro v. United Kingdom) case brief

Legality of Use of Force (Serbia & Montenegro v. United Kingdom)


Procedural History:
Claim of illegal use of force against various NATO states.

Overview:
[The Federal Republic of Yugoslavia (Serbia and Montenegro) (F.R. Y.) (P) brought a claim in the International Court of Justice against various NATO states (D), including the United Kingdom (D), in 1999. The I.C.J. first considered the issue of jurisdiction.]  [The Federal Republic of Yugoslavia (Serbia and Montenegro) (F.R.Y.) (P) brought a claim in the International Court ofJustice against various NATO states (D), including the United Kingdom (D) in 1999. Before considering the claim, the I.C.J. had to determine if it had jurisdiction to hear the case, which would only be the case if the F.R.Y. (P) was at the time of the claim a U.N. member state. Its predecessor state, the Socialist Federal Republic of Yugoslavia, was a member state at the time.]

Issue:
Must the legal position of a state within the United Nations be determined and clearly defined by the competent organs of the United Nations?

Rule:
the legal position of a state within the UN must be determined and clearly defined by the competent organs of the UN.

Analysis:
The I.C.J.’s opinion focused on the F.RY.’s (P) status within the United Nations. But note that non-U.N. members may also become parties to the LCJ.’s statute under Article 93(2). Remember also that while a state that is a party to the LC.J.’s statute is entitled to participate in cases before the LC.J., being a party to the statute does not automatically give the I.C.J. jurisdiction over disputes involving those parties.

Outcome:
-The legal position of a state within the United Nations must be determined and clearly defined by the competent organs of the United Nations. The legal position of the F.R.Y. (P) remained ambiguous between 1992 and 2000, the period during which its claim against certain NATO states (D), including the United Kingdom (D), was filed. The U.N. Security Council and General Assembly both decided that the F.R.Y. (P) could not automatically continue the membership of the Socialist Federal Republic of Yugoslavia in the United Nations, and that the F.R.Y. (P) should reapply for membership. These resolutions were approved by a majority of member voters, but they cannot be construed as conveying an authoritative determination of the F.R.Y.’s (P) legal status in the United Nations, because certain events made the F.R.Y.’s (P) status seem ambiguous-the General Assembly assessed annual contributions to the United Nations, the F.R.Y. (P) maintained that it continued the legal personality of the S.F.R.Y., and the Secretariat of the United Nations kept up the practice of the status quo ante that was in place up to the dissolution of the S.F.R.Y. But the situation cleared when the elected president of the F.R.Y. (P) in 2000 requested admission to the United Nations from the Secretary-General, which then recommended the state’s admission. F.R.Y. (P) was admitted in late 2000. In hindsight, then, the F.R.Y. (P) was not a member of the United Nations when it began this action in 1999. Therefore, there was no jurisdiction to hear its claim.

Frontier Dispute Case (Burkina Faso v. Republic of Mali) case brief

Frontier Dispute Case (Burkina Faso/Mali)


Procedural History:
Petition to resolve a border dispute.

Overview:
Burkina Faso and Mali submitted a question to the International Court of Justice regarding a border dispute.

Issue:
Does there exist an obligation to respect preexisting international frontiers in the event of a state succession?

Rule:
-There exists an obligation to respect pre-existing international frontiers in the event of a succession.

Analysis:
-The principle of uti possidetis developed with respect to the Spanish American colonies. In a similar dispute between El Salvador and Honduras, the Court described the principle as follows: “The general principle offered the advantage of establishing an absolute rule that there was not in law in the old Spanish America any terra nullius; while there might exist many regions that had never been occupied  by the Spaniards … the regions were reputed to belonging in law to whichever of the republics succeeded to the Spanish province to which these territories attached by virtue of the old Royal ordinances of the Spanish mother country.”

Outcome:
-There exists an obligation to respect pre-existing international frontiers in the event of a state succession, whether or not the rule is  expressed in the form of uti possidetis.  Thus, the numerous declarations of the intangibility of the frontiers at the time of the declaration of independence of the African states are declaratory. The fact that the principle did not exist when the states declared such independence in 1960 does not foreclose its present application.