Business Judgment Rule and Abstention Doctrine Quiz

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According to the Business Judgment Rule, what is the traditional explanation for courts not reviewing duty of care claims?

Courts are biased towards shareholders
Courts lack the authority to review such claims
Courts are biased towards directors
Courts lack expertise in business matters (correct)

What is the purpose of the Business Judgment Rule in encouraging managerial risk-taking?

To shield directors from liability
To protect directors and officers from risks
To encourage shareholders to take risks
To provide a default rule that reconciles the interests of shareholders and managers (correct)

What is the impact of hindsight bias on the duty of care claims?

It makes it difficult to distinguish between competent and negligent management (correct)
It creates a presumption against judicial review
It raises the bar for negligence to gross negligence or recklessness
It encourages directors to take more risks

What is the primary reason for courts to review board decisions?

To check if there was any illegality or fraud (A) Signup and view all the answers

What are the criteria that must be satisfied for BJR to apply?

An exercise of judgment, disinterested and independent decision makers, and absence of waste (A) Signup and view all the answers

What is the burden of proof for defendant directors when the BJR is rebutted?

To demonstrate that the challenged act or transaction was entirely fair to the corporation and its stockholders (C) Signup and view all the answers

What are the two explanations for the Business Judgment Rule (BJR)?

The BJR's traditional explanation is that courts are not business experts and someone must be 'final'. Another explanation is that it encourages directors to take risks and protects them from the risks. Signup and view all the answers

What is the Abstention Doctrine, according to Shlensky?

The Abstention Doctrine creates a presumption against judicial review of duty of care claims. The court will abstain from reviewing the substantive merits of directors' conduct unless the plaintiff can rebut the BJR by showing that one or more preconditions are lacking. Signup and view all the answers

What is the impact of hindsight bias on the judicial review of duty of care claims?

Knowing with the benefit of hindsight that a business decision turned out badly could bias judges towards finding a breach of the duty of care. Both shareholders and judges will find it difficult to distinguish between competent and negligent management. Signup and view all the answers

What is the role of a Special Litigation Committee (SLC) in derivative suits, and what factors do they consider when determining whether to proceed with the suit?

The SLC is created to determine whether it is in the corporation's best interests to carry on with the derivative suit brought by a shareholder. They consider factors such as the likelihood of success, potential harm to the corporation and its shareholders, and the cost of the litigation. Signup and view all the answers

What are Poison Pills, and what is the standard that directors must meet when implementing them?

Poison Pills are measures taken by directors to prevent a hostile takeover. Directors must demonstrate that they had reasonable grounds for believing that a threat existed, and that the measure taken was proportional to the threat, according to the Unocal standard. Signup and view all the answers

Once the BJR is rebutted, what is the burden of proof for defendant directors, and what standard must they meet to demonstrate that the challenged act or transaction was entirely fair to the corporation and its shareholders?

Once the BJR is rebutted, the burden of proof shifts from the plaintiffs to defendant directors. Defendants must demonstrate that the challenged act or transaction was entirely fair to the corporation and its shareholders, according to the Entire Fairness Standard. Signup and view all the answers

Business Judgment Rule and Abstention Doctrine Quiz

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