answer

Business Associations

This question is a fact intensive but law scant question.

To what relief is Pat entitled in the derivative action, and on what bases and against which defendants?

Shareholder Derivative Suit

A shareholder may bring a derivative suit on behalf of the corporation for harm done to the corporation. For the shareholder to bring a derivative suit, she must (1) own stock at time claim arose and throughout litigation, (2) make a demand on director to bring suit or redress the injury and the demand is rejected unless such a demand would be futile. Here, Pat was a 1% shareholder and without making demands to the new board of Motco could bring a derivative suit because doing so would be futile in light of the looting allegations and violation of duties by the directors.

Against Carl

Controlling Shareholder

A controlling shareholder is one with enough voting strength to have a substantial impact on the corporation. Here, Carl owned 30% of the common stock of Motco and nobody else in the company owned more than 2% of the stock. Carl had a such big enough ownership in the Motco that Rich approached to acquire all of Carl's Motco stock and he had such influence to ensure that all nine board members of Motco to resign and Bigco's nine nominees would be elected instead. As his previous dealings have shown, Rich had been known to loot the companies he acquired and selling his 30% shares to Rich could have a substantial impact on the future well being of the Motco. Therefore, Carl is a controlling shareholder under the definition.

Duties of Controlling Shareholder

Traditionally, a shareholder owes no fiduciary duty to the corporation or other shareholders. But modernly, controlling shareholders owe a fiduciary duty to the corporation and minority shareholders of the duty of care and duty of loyalty.

Selling Motco's controlling shares to Looter

Controlling shareholders cannot sell control of the corporation to a looter if they know, or have reason to know, that the buyer intends to harm the company. Here, Carl probably did not know Rich was a looter but he could have found it out. He received a letter from the former president of the companies looted by Rich but did not conduct any inquiry other than asking Rich, who flat out denied it. Since final judgements had been entered in litigation concerning Bigco's control of the three failed companies, holding Bigco and Rich liable for wrongful diversion of assets, Carl could have found out that Rich was a looter, had he exercised some due care and conduct some investigation. Yet, Carl did not do so and relied blindly on assurance from Rich. Thus, Carl breached the duty of care he owed to Motco.

Selling Motco's stock at a premium

Sale of controlling shares at a premium may be allowed where the transaction is made in good faith and is fair. It is not allowed if receiving personal benefit for the sale of a corporate asset or corporate office. Here, Carl was paid a huge premium for his shares and in return, made sure all the current directors were removed and replaced by Bigco's nominees. Carl is liable to Motco for the premium he received for the controlling stock.

Against Motco's new directors

Duty of care

A director of officer owes the corporation a duty of care to act as a reasonably prudent person would act under similar circumstances. Here, the new directors of Motco voted unanimously to convert the Motco motorcycle plant exclusively to the manufacture of motor-driven bicycle which caused the earning to drop. This change in business seems to be motivated by the desire to benefit the business of Bigco and is not reasonable under the circumstances as recent adverse publicity over an increasing number of moped accidents which would lead a reasonable director to expect the adverse business climate.

Business Judgment Rule

The new directors could try to justify their conduct by citing business judgment rule that they acted in good faith and the best interests of the corporation and its shares and and did not act unreasonably. However, this defense would probably fail because their decision to drastically switch the business of Motco was unreasonable and probably made in bad faith to benefit Bigco.

Duty of loyalty

Director owes a duty of loyalty to the corporation and a director must put the interests of the corporation above his own interests. Motco's board of directors acted to benefit Rich's interests and while it is unclear that the directors personally benefited by the decision, if they had, then they breached the duty of loyalty.

Against Bigco

Controlling Shareholder

See above for the rule. After Bigco acquired Carl's controlling share of Motco, Bigco became a controlling shareholder.

Duties of Controlling Shareholder

See above for the rule. The Bigco installed new directors who appear to be working for the interest of Rich at the expense of the minority shareholders and thus liable for the losses.

Recovery

In a shareholder derivative suit, the corporation receives the recovery, if any, and the shareholder is entitled to reimbursement for the expenses of litigation.

REAL PROPERTY - PROFESSIONAL RESPONSIBILITY

Answer

I.Donna and Paul’s interests in the roadA.DonnaDonna’s interests in the road are based on express or prescriptive easement theories.1.Express easement: Deed, Delivery and TitleStan agreed to give Donna a roadway easement across his property to improve Donna’s access toher own property. The road is an appurtenant easement because Donna’s dominant easementbenefits from the right to cross the servient estate.a.DeedLen, Stan’s lawyer, prepared the deed granting “an easement for a road 30 feet wide” along adesignated path. Stan signed the deed. Len’s status as Donna’s lawyer does not invalidate thedeed; no facts suggest there are any problems with the legality of the deed.b.DeliveryA few hours before Stan died, he instructed Len to give the signed deed to Donna. Delivery to athird party under these circumstances satisfies the delivery requirement. Stan had the intent topresently convey the easement, and his delivery to Len is adequate to constitute delivery toDonna, who received the deed from Len the next day.c.TitleStan had the title to his property, so he had the right to grant an express easement to Donna.2.Statute of FraudsSince the easement is an interest in land, the Statute of Frauds requires a writing signed by theparty to be charged. The deed satisfies this requirement, because it describes the easement and issigned by Stan.

3.Prescriptive EasementIn the unlikely event that Donna’s express easement claim is unsuccessful, she has a persuasiveargument that she has acquired a prescriptive easement. To establish this claim, Donna will haveto meet the physical, mental and time requirements.a.Physical ElementDonna constructed a gravel road 15 feet wide along the designated path in 1976. The road hasbeen continually used since then, and Donna has repaired it over the years. The ongoingpresence of the road meets the physical element of a prescriptive easement, but only as to the 15feet actually used, not the 30 feet originally granted.b.Mental ElementHad Stan merely given Donna permission to cross his land, she might have been a licensee, inwhich case her right to use the road would have been freely terminable. But here, Donnabelieved she had been granted an express easement. She constructed and used the road underclaim of right, which satisfies the mental element.c.Time ElementDonna has used and maintained the road for 21 years. This is long enough to satisfy the timeelement for a prescriptive easement, which was 20 years at common law, less in somejurisdictions.4.ConclusionDonna has a valid express easement as to the full 30 foot right of way. Should her failure torecord or Len’s misconduct invalidate the deed, she will successfully claim a prescriptiveeasement as to the 15 feet she has used since 1976.B.Paul: Rights as inheritor of the servient estatePaul is Stan’s son. He inherited Stan’s farm in 1975 and never objected to Donna’s activities.Now that Donna has new, more elaborate plans, Paul objects. Those objections are discussed insection II below. To determine if the burden on Paul’s estate runs with the land, we willexamine touch and concern, intent and notice.1.Touch and concernThe easement touches and concerns Paul’s farm because the road goes across Paul’s land.

2.IntentStan intended to grant a permanent express easement. Stan intended for the burden to run withthe land.3.NoticeDespite the fact that Donna never recorded her deed, Paul knew about the road and neverobjected to Donna’s activities.C.ConclusionDonna has a good argument in favor of an express easement. Should that argument fail, she willbe able to establish a prescriptive easement.IIMay Donna carry out her plans for the road?Although Donna will be able to continue to use the easement, whether or not she can carry outher elaborate plans for the road will require further analysis.A.Donna’s plans exceed the scope of the easement.1.Width of the roadDonna plans to widen the road to 30 feet. As discussed above, if Donna’s express easementclaim is successful, she will be free to widen the road to 30 feet. If Donna is limited to theprescriptive easement, she will not be able to carry out her plans to widen the road.2.PavementIt seems evident that this aspect of Donna’s plans is reasonably foreseeable, and probably wascontemplated by the parties. This aspect of Donna’s plans is the least problematic, although shemay be limited to 15 feet, as discussed above.3.Underground UtilitiesNeither Stan nor Donna contemplated that the easement would become an important element ofa big commercial development. Although a court might find that some use of the easement forutilities would be foreseeable, it is likely that a court would consider an extensive commercialuse of the easement to be excessive.B.Donna’s plans may constitute a nuisance.

Donna wants to use the road as the main entrance to a big commercial complex. This wouldcause heavy traffic, and associated noise and pollution. It seems likely this would substantiallyinterfere with Paul’s use and enjoyment of his property.

C.Conclusion

Donna cannot carry out all her plans for the road over Paul’s objection. If her express easementtheory prevails, she may be able to pave the road and widen it to 30 feet, and she may even beable to put in some utilities. She will not be able to use the easement as the main entrance to acommercial complex, because it drastically exceeds the foreseeable scope of the original easement.

III. Has Len violated any rules of professional conduct?

A.Duty to Disclose

Len prepared the easement deed for Stan without telling him he also represented Donna. Lenhad a duty to disclose this fact to Stan, and his failure to do so could subject him to discipline.

B.Duty of LoyaltyLen’s failure to disclose to Stan his representation of Donna was a breach of his duty of loyaltyto Stan. Had Stan known of Len’s advice to Donna about acquiring the easement, he might havesought independent legal advice. This act of professional misconduct will subject Len to discipline.

C.Duty of Competence

Len failed to advise Donna to record the deed when he delivered it to her. Perhaps Len wastrying to compensate for compromising Stan’s interest in the land, or maybe he was negligent.In either case, this conduct will subject Len to discipline.