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Officer, Director Liability

Officer, Director Liability. Civil and Criminal. RTA Officer Director Liability under MBCA. What is the MBCA? Is it “liberal” or “conservative” or “what”? Who are the “winners” and “losers” under SOME of its provisions? Some important provisions:

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Officer, Director Liability

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  1. Officer, Director Liability Civil and Criminal

  2. RTA Officer Director Liability under MBCA • What is the MBCA? • Is it “liberal” or “conservative” or “what”? • Who are the “winners” and “losers” under SOME of its provisions? • Some important provisions: • -who determines value of consideration for corp. stock; • -std of care for D, O

  3. MBCA provisions (cont’d.) • Important provisions (cont’d.) • Promoter liability for preincorp contracts • -who are legal mgrs of corp? May dir authority ever be dispensed w/ or limited? • -D, O fiduciary duties; D, O duty care • -merger decisions • -conflicts of interest • -D, O, ee reimbursement for jdgts, legal fees

  4. General stds for Directors • Dischg duties as Dir (incl comm’ees) • -in good faith • -w/ care ORP person in like position under similar circumstances • -in manner S/HE reasonably believes in BIOC (best interests of corp)

  5. Info Director entitled rely on • Info, opinions, rpts, statements (incl. Financial statements) et al financial data IF presented by: • -officer/-s or corp ees dir reas’bly believes reliable, competent re matter • -legal counsel, public acc’ts, et al persons re matters D reas’bly believes w/in person’s prof’l competence, expertise • ...

  6. Director Stds (cont’d.) • D may rely on (cont’d) • -data, etc presented by committee of bd of which D NOT a member if D reas’bly believes committee merits confidence • D NOT act in Gfaith IF: has knowledge re matter making reliance otherwise permitted unwarranted • D NOT liable as D IF complies w/ sec MBCA

  7. Officer, ee duties, rts • General rules of agency apply • examples: fiduciary duties; • duties of care • Statutory duties under federal securities laws: • -’33 Securities Act (applies only when issue “new” securities)

  8. Officer, Dir Liability under ‘33 Sec. Act (cont’d.) • Section 11 claims: Let investors who are damaged by material error or omission in Registration Statement for new security sue RS signers, directors, major (>=5% Shers) IF: 1) acquired security • 2) material error or omission • 3) RS covers security • 4) P damaged

  9. ‘33 Sec. Act (cont’d.) • Defendants: • the issuer (strictly liable) • all directors (including those agreeing to become directors) • CEO, financial, accounting officers of • issuer • experts as to “expertised” portion of RS; all underwriters

  10. ‘33 Securities Act (cont’d.) • Extent of liability: Joint & several (one dir or O is liable for entire judgment U/L outside director (whose liability is proportionate U/L acted “knowingly”

  11. ‘34 Sec. Exchange Act • Insider Short-swing profit prohibition: No trading in issuer’s stock on short-term (< 6 mos. Holding period) by issuer insiders (officer, dir, 10% sh) except <100 sh; also may not act thru “straw men” (16b) • stock proxies & proxy statements • sec 10b & rule 10b-5 Anti-fraud; applies to securities even if not required to be reg (very small cos, for example)

  12. Securities Act 1934 (cont’d) • More 10b instances • What might be fraud by an officer, dir? (“any person”) • -insider trading (Tx Gulf Sulphur)(not require “sale/purchase” as does 16b) • -spreading false rumors • “Tippees” trading in issuer’s security (“Inherit the taint” rule of Dirks v. SEC)

  13. Takeover bids (tender offers) • Public offers to buy target corp’s shares from corp SHs at set price • not need be all • must be same price to all offerees • SHs may w/draw tendered S for 1st 7days of T/offer; also may w/draw if not bot w/in 60 days of T/offer • If anyone owns >5% of security must reg w/ SEC & target w/in 10 days

  14. Some environmental laws relevant to business • Clean Water Act • -What is prohibited: Dischg of pollutant from point source into US waters is illegal unless have NPDES permit • -How it works; discharges covered • -point sources • -discharges into POTWs • -non-point sources

  15. Environmental law affecting business (cont’d) • Sanctions: • CRIM’L: negligent violations of NPDES permits or negligently introducing any pollutant or hazardous substance into sewer system if know or should know would cause pers’l injury or property damage, fines MIN. $2500/day to MAX of $25,000/day or ONE YR PRISON OR BOTH

  16. Env’l law affecting biz (cont’d) • Sanctions (cont’d) • Crim’l.: KNOWING violations NPDES permit or pretreatment program: FINES MIN $5000/day to MAX $50,000/day or IMPRISONMENT for three yrs or BOTH • Knowing endangerment (viol. NPDES prmt. & death/serious bodiy harm: max $1 million fine and/or 15 YRS JAIL

  17. Envir’l law affecting biz (cont’d) • Clean Water Act sanctions (cont’d) • CRIM’L: False statements in reports under the Act fine up to $10,000 and/or PRISON up to 2yrs • Civil: EPA has authority to set administrative civil sanctions for NPDES violations

  18. Environ’l law affecting biz (cont’d) • CERCLA (Superfund) to clean up hazardous waste sites • Who are PRPs? • Owners of site • Transporters • Operators • Person who arranges for transportation on hazardous waste

  19. Envir’l laws affecting biz (cont’d) • CERCLA (Super Fund) cont’d • -”facility” • -”release or threatened release” • -”P incurred ‘response costs’” • -”response costs conform to Nat’l Contingency Plan” • strict liability (even if negligent, liable)

  20. Env’l laws affecting biz (cont’d) • How Super Fund works (EPA cleans up hazardous waste site & bills PRPs) • Joint & several aspect • Retroactive aspect • Case: Prisco v. A & D Carting

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