Facts of the case
The two control 43% of the total outstanding share value of the company. On the other hand, Modell controls a significant percentage of the company’s shares as well. To be precise, the total amount of shares of Delaware Corporation that are owned by Modell amounts to 57% of the outstanding share. This makes the two shareholders major investors in the company. His wife, Patricia Modell is also an influential member of the board. Patricia also worked as a full-time employee of the Browns.
Other directors included Bailey, Berick, Cole, and Wallack. Bailey was a general counsel and a full-time employee as well. Berick on the other was an outside legal counsel for the company. Cole and Wallack were also full-time employees although Wallack died at the beginning of the years, 1984. Evidently, Modell and Gries were the largest shareholders since the rests only held a combined amount of less than 1% of the total outstanding shareholding.
Issues
In 1973, Modell and other partners joined resources to form Cleveland Stadium Corporation. The stadium was a stadium managed and owned by the municipal city of Cleveland for a lease plan that would last for 25 years. Modell sold one hundred and ninety acres of land in Strongsville at a price of US$4, 000,000 but only 3 million was paid in cash. The remainder of the total amount was to be paid on different terms. Browns’ directors decided to acquire CSC and Gries was opposed to the move citing discrepancies in the valuation of the land. In response to this, Modell offered to drop the amount of money owed to him in a bid to influence the decision of the board. The 1000,000 dollars owed to him by the promissory order was dropped and he was adamant that the value of ht piece of land would increase based on his generous offer.
However, Gries was not convinced as yet. The issue in these cases was to determine whether or not the records provided by all the parties contained any competence or credible evidence. This was very important to support the findings of the trial court. The court had ruled that the board did not have any legal claim for the protection of the judge’s rule. The other complaint was that the acquisition of the CSC was deficient of legal fairness. Another borne of contention was to determine whether or not the court had erred in its ruling. This challenged the applicability of the business judgment rule that was given by the court.
According to the judges, it was concluded that indeed the records were lengthy but the documentation was intact. The judge’s decision maintained that the 3,309 pages long transcripts were fit and convincing and they contained considerable proof that supports the courts conclusions.
Reasoning
This ultimately informed the ruling of the judges in this case. The court’s ruling argued that Berick was indebted to Modell considering the fact that he was Brown’s outside legal counsel. The proof supported the court’s verdict and it was determined that the directors were not objective or autonomous on the issue. The readings however proved beyond any considerable doubt that the directors were informed.
Analysis
The court therefore declared that the directors were voting for the acquisition of CSC from a point of knowledge. They were adequately informed of and this is warranted in the Delaware law. The defendant also failed in his part to fulfill the proof that the transaction was fair to the company as well as to the minority shareholders. The ability of the complainant to show that error intervened in this case was futile. Nonetheless, this proof was required and important to support the reversal of the judgment and warrant a hearing in the court of appeal. The analysis result proved that undoubtedly the business judgment rule was faulty and it was insufficient to protect the transaction and one of the dissenting opinions was that the transaction required a fresh application to subject it to the fairness test.
Decisions
All the parties involved in this case agreed that the Delaware law is applicable in the Gries dispute. It was agreed that by making the business decision all the directors were acting from a point of knowledge. It also determined that their actions were in good faith and intent was to serve the best interest of the company. The court also determined that defendant could not sufficiently uphold the burden of proving beyond reasonable doubt that the transaction had an issue. The judgment was ultimately reversed.
Separate opinions
The court’s findings concluded that brown’s directors were financially benefiting from the disputed transactions. All the directors who voted for the transaction were interested parties considering their gains financially from the deal. I addition, the Appellate argued that by not compelling the CSC and Gries legal teams to serve Cole with the papers he sought for was an error. However, the argument by the appellate court’s opinion lacked affirmation to show that an error occurred therefore it was reversed. The transaction was not approved by the majority Brown’s Directors. It was approved by the minority stockholders who were financially benefiting from the purchase. Therefore the case could not be protected by the Delaware business judgment law. The court of appeal had ruled that the curt had erred. Nonetheless, Lack of avowal by the appellate court caused its verdict to be reversed and the original trial court judgment was re-established.
Questions
Why the case was being decided in a legal court?
This case is involves matters of a legal nature with regard to business law. For this reason, the case could only be sufficiently resolved in law. In addition, the parties were unable to resolve the matter amicably outside the court.
Under what circumstance will the business rule not be used and what standards will be supplied?
The reason for this ruling was based on the following reasoning. The ruling was based on Delaware Law that requires the director challenging the fairness of a transaction that has been approved by the majority of directors to be: fair-minded, sovereign and well-versed in order to claim the advantage of the business’s judgment rule. However, the judges are quick to inform the parties that this does not translate into the director claims being refuted. It is a procedural structure that has to be followed by law.
What state law was applied to define the business judgment rule and why that rule?
The Delaware state law was used to determine the case and it was used because there was a similar case that had been decided before using the same law. In addition, the law captures the scope of business law in this case.