Able, Inc. is a duly-organized California corporation in the business of making plastic forms for lawnmowers and
Question:
Able, Inc. is a duly-organized California corporation in the business of making plastic forms for lawnmowers and leaf blowers. Bill, Connie and Ed are the directors and Francis is the president. Able has been losing market share, is in financial difficulty, and has been looking for ways to accomplish a turn-around. At a duly called meeting attended by all three directors: 1. The purchase of expensive equipment for a new-product line (plastic pipe) was approved. The purchase was proposed by Francis, although she had not done any due diligence on the supplier or the possible market for the product. The directors approved because they thought she knew what she was doing. 2. The entry by the corporation into a contract for raw materials with Grand Corporation was approved on Ed's recommendation. Unbeknownst to the other directors, Ed's significant other was a major stockholder of Grand and Grand's prices were higher than those of other suppliers. There proved to be no market for plastic pipe and Able wrote off the cost of the equipment. Shortly after the director's meeting, Connie got a call from an investment banker about an opportunity to acquire a controlling interest in a company making forms for power tools. She thought it sounded like a good opportunity and she made the investment, which turned out successfully, herself, for her personal benefit. Heather is a stockholder of Able. She seeks your advice as to her legal rights.
1. Discuss any liability the board may have in a derivative suit (ignoring procedural requirements) based on the purchase of the plastic pipe equipment.
2. Discuss any liability Ed may have in a derivative suit (ignoring procedural requirements and excluding any liability discussed in your answer to question 1 above).
3. Discuss any liability Connie may have in a derivative suit (again ignoring procedural requirements and excluding any liability discussed in your answers to questions 1 and 2 above).
4. Discuss briefly the procedural requirements Heather must satisfy to bring a derivative suit against Able's directors.
Expert Answer:
1 The board may be liable in a derivative suit for breach of fiduciary duty due to approving the pur... View the full answer
