Reference no: EM133569401

Case Study: Just Desserts, Inc., a Delaware corporation ("JD"), has a five member board consisting of Anthony, Elizabeth, Justin, Tammy, and Vivian. Anthony and Elizabeth are spouses while the other three board members have no relationship with one another outside of their board service. Elizabeth holds 60% of the JD shares. No other board member holds JD shares. Just Desserts purchased a store from Fairfax Realty Corp. ("Fairfax"). At the time of the purchase, Elizabeth owned 1% of the shares of Fairfax and Vivian was on the Fairfax board. Suppose shareholders have sued the JD board alleging that the purchase from Fairfax represented a breach of fiduciary duty.

Questions:

1. How would you analyze the transaction if the entire board approved the store purchase from Fairfax?

2. How would you analyze the transaction if the entire board except Tammy approved the store purchase from Fairfax?

3. How would you analyze the transaction if JD held a shareholder vote on the transaction and (excluding Elizabeth's shares) only 10% of the remaining shareholders approved the store purchase from Fairfax, while 30% of such shareholders voted against the purchase?

4. How would you analyze the transaction if, at the time of the vote approving the Fairfax purchase, no board member had knowledge of Elizabeth and Vivian's connection to Fairfax?

5. How would you analyze the transaction if the store price was significantly above fair market value?