Stephanie Gately was the majority shareholder of Campbell Farming Corporation. Stephanie controlled 51 percent of the company’s shares, while the minority shareholders controlled the remaining 49 percent. Stephanie was the director of the company, and her son, Robert Gately, was the president of the company.
Stephanie offered a bonus to her son. The minority shareholders voted their shares against the bonus, but, because the majority shareholder voted her shares in favor of the bonus, the transaction was approved.
The minority shareholders sued the corporation, its majority shareholder, and her son, the president of the corporation. The plaintiff minority shareholders alleged breach of statutory and fiduciary duties.
After consideration of the business judgment rule, the district court ruled that the bonus transaction did not constitute a breach of fiduciary duties. The plaintiff minority shareholders appealed.
1. If you were a minority shareholder of Campbell Farming Corporation, would you think that the corporation’s director breached her fiduciary duties?
2. What is the business judgment rule? How did this rule affect the district court’s decision?