# Business Entities and Operation — Devlin, Fall 2026
## A Doctrine-First Reconstruction of the Entire Casebook

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## How to use this document

The casebook is organized **week → case → case → case**. That ordering tracks the professor's classroom sequence, not the structure of the law. This document inverts it: **rule structure first, cases underneath as boundary conditions.**

The course is actually four bodies of law wearing one syllabus:

| Weeks | Body of law | Governing source |
|---|---|---|
| 1–6 | Agency | Restatement (Third) of Agency |
| 7 | Liens; third-party rights against P and A | Common law + G.L. c. 221, § 50 + UCC Art. 9 |
| 8–10 | Partnership, LP, LLP, LLC | G.L. c. 108A, c. 109, c. 156C |
| 11–14 | Corporations | G.L. c. 156D + Delaware/Massachusetts case law |
| 15 | Insider trading | § 10(b), Rule 10b-5, Rule 14e-3, Rule 10b5-2 |

Five structural notes that hold across all fifteen weeks:

1. **Classification is never the endpoint.** It determines which next question becomes legally available. "Agent" gets you one set of consequences; "employee-agent" unlocks respondeat superior; "partner" unlocks joint and several liability; "close corporation shareholder" unlocks fiduciary duties that ordinary shareholders don't have.
2. **Labels do not control.** This is the single most repeated proposition in the book — *Wright*, *Drummond*, *Vohland*, *Fenwick*, *Martin v. Peyton*, *Gangloff*. Devlin says it explicitly in the partnership introduction: "What the parties call themselves is not dispositive."
3. **Most default rules are gap-fillers — but always check which kind you have.** Before advising anyone to draft around a rule, classify it: **default** (parties may vary it freely), **waivable only with informed consent** (Rest. § 8.06; the *Bassan* and *Fronk* consent problems), or **mandatory** (Rule 5.6 on lawyer competition, G.L. c. 149 § 24L's statutory noncompete limits, the § 148B ABC test, the securities antifraud rules). Sometimes the answer is "draft around it." Sometimes the whole point of the doctrine is that you cannot.
4. **Flag the source status of every rule you learn.** Is this the current rule, a historical rule the Restatement (Third) abandoned, a rule specific to one jurisdiction, or a rule in open conflict with the Restatement? Several of the assigned cases teach doctrine the Third Restatement deliberately rejected — see *Old rule vs. modern rule* in the reference section. Those conflicts are among the most useful material in the course; don't flatten them into the modern framework.
5. **Read every holding through its procedural posture.** "There is enough evidence for a jury" is not "the defendant is liable." Summary judgment denied, jury question, burden shifted, injunction available, damages available — these are different outcomes, and on an exam the posture often matters more than the nominal rule.

Devlin's own closing instruction — *"Was the case correctly decided?"* — is worth keeping in the margin of every case.

---

# PART I — AGENCY (WEEKS 1–6)

## The master agency map

| Question | Restatement (Third) home | What you are actually asking |
|---|---|---|
| Is there an agency relationship at all? | § 1.01; Ch. 1 | Did P assent that A act on P's behalf and subject to P's control, with A's consent? |
| Do the parties' labels decide it? | § 1.02 | No. Disclaiming "agency" does not resolve the legal relationship. |
| Did A have actual authority? | §§ 2.01–2.02; § 3.01 | What did A reasonably understand P had authorized? |
| Did A have apparent authority? | § 2.03; § 3.03 | What did T reasonably believe from manifestations traceable to P? |
| Is P estopped from denying authority? | § 2.05 | Did P cause/permit the mistaken belief, and did T detrimentally rely? |
| Undisclosed P — is P a party to the contract? | § 6.03 | Did A act with **actual** authority? Apparent authority is structurally unavailable here. |
| Undisclosed P — A acted *without* authority | § 2.06 | Did P know of A's conduct and its likely effect and fail to correct it? And note: secret limits cutting A below the ordinary scope of the role don't bind T. |
| Can A appoint someone else? | **§ 3.15** (§§ 3.14, 3.16 to distinguish) | Is the second actor A's **subagent** — performing what A owes P — or a coagent, or an agent for coprincipals? |
| Must A's authority be written? | § 3.02 | Equal-dignities / formality problem. |
| A lacked authority — did P adopt it later? | Ch. 4 | Ratification. |
| Has A's **actual** authority ended? | §§ 3.06–3.10 | Death, incapacity, agreement or changed circumstances, revocation, renunciation. |
| Has A's **apparent** authority ended? | § 3.11 | A separate question. Terminating actual authority does not by itself end apparent authority. |
| Does A's knowledge count as P's? | Ch. 5 | Notification and imputation. |
| Who is contractually liable? | Ch. 6 (§§ 6.01–6.04) | Disclosed (P only), unidentified (P and A), undisclosed (A and T, plus P unless excluded); signature and capacity. |
| Does suing one release the other? | § 6.09 | No. Judgment against A or P does not discharge the other; only **satisfaction** discharges, and only to that extent. Contrast *Williams* — see the conflicts table. |
| Is P vicariously liable for A's tort? | § 2.04; Ch. 7 | Employee status **plus** scope of employment. |
| Is P directly negligent as to A? | **§ 7.05** (also §§ 7.04, 7.06) | Negligent selection, training, retention, supervision, or control; authorized tortious conduct (§ 7.04); nondelegable protective duties (§ 7.06). |
| What duties does A owe P? | Ch. 8 | Loyalty, care, obedience, confidentiality, no improper competition. |
| May A compete? | § 8.04 | Not during agency absent consent; preparation is generally different. |
| May A use confidential information? | § 8.05 | Separate from freedom to compete after leaving. |

**Three inquiries that must never blend:**

- **Actual authority** = what *the agent* reasonably believed, because of *the principal*.
- **Apparent authority** = what *the third party* reasonably believed, because of *the principal*.
- **Scope of employment** = whether an *employee's tort* was sufficiently connected to the employment.

The casebook's loose "reasonable expectations" language is less useful than the precise question: **whose expectation, based on whose manifestation, for what legal purpose?**

---

## WEEK 1 — CLASSIFYING AGENTS
*Syllabus: Restatement Ch. 1 + § 2.04*
*What you actually need: §§ 1.01–1.02, 2.04, 3.14–3.16, 7.07; Ch. 6 background for* Rowen

Week 1 contains three clusters that should be kept apart:

- **Cluster A** — Is there agency, and who is whose agent? (*Demian*, *Tormo*, *Bucholtz*, *Rowen*)
- **Cluster B** — Is this agent also an *employee* for respondeat superior? (*Cowan*, *Miguel*, *Wright*)
- **Cluster C** — Does a statute impose its own definition or its own immunity? (*c. 151A*, *Ruggiero*, *Fortenbacher*, *Dudley*)

### Demian, Ltd. v. Frank
**Restatement fit:** §§ 1.01, 3.15 · **Role:** CORE — subagency

Structure: **Demian (P) → Frank (A) → Sun (possible SA)**. Frank's liability turns on whether Sun was employed as *Frank's* subagent to perform *Frank's* duties to Demian, or became a separate agent answerable directly to Demian. Ask: did Demian authorize delegation; did Frank appoint Sun to perform functions Frank owed; do Sun's duties flow through Frank or directly to Demian?

The second and more important point: the appellate court notes that if Frank *personally promised* the goods would be inspected, he is liable for his own contractual breach regardless of subagency doctrine.

> **Takeaway:** Don't reach for vicarious liability when the defendant may have committed a direct breach.

### Tormo v. Yormark
**Restatement fit:** §§ 1.01, 3.15; Ch. 8 duty of care · **Role:** CORE/BOUNDARY — delegation plus negligent selection

**Clients → Devlin → Yormark.** The court first finds an attorney-client relationship despite no retainer or payment — undertaking to provide legal services is enough. Then: an agent authorized to employ others to handle the principal's affairs has a duty to exercise care in *selecting competent and proper* agents.

| Case | Central question |
|---|---|
| *Demian* | Whose agent/subagent was the delegated actor? |
| *Tormo* | What duties remain with the original agent after delegation? |

### Bucholtz v. Sirotkin Travel
**Restatement fit:** § 3.15; Ch. 8 reasonable care · **Role:** CONTRAST to *Tormo*

**Traveler (P) → travel agency (A) → wholesaler (X).** If the customer expressly or impliedly consented to use of the wholesaler and the agent used reasonable diligence in selecting it, the agent is not responsible merely because the wholesaler defaulted. Without consent to the delegation, the result changes.

> *Tormo*: delegation can produce liability through negligent selection. *Bucholtz*: authorized delegation + reasonable care ≠ insurer of the substitute's performance.

### Rowen & Blair Electric v. Flushing Operating Corp.
**Restatement fit:** actual authority; undisclosed principal; Ch. 6 · **Role:** CORE, but old terminology

**Flushing (undisclosed P) → Dutch Treat (A, authority capped at $45,000) → Rowen & Blair (T).** Dutch Treat exceeded its authority; the court limits Flushing's exposure to the authority actually granted. The professor frames this as "general vs. special agent" — don't build your modern outline on that distinction.

Because P is **undisclosed**, apparent authority is structurally unavailable: T cannot form a reasonable belief from Flushing's manifestations when T doesn't know Flushing exists.

> **Takeaway:** Apparent authority is not the universal fallback when actual authority fails. Identify whether P is disclosed *before* choosing the doctrine.

Two modern sections do the work the older opinion assigns to "special agent" reasoning. **§ 6.03** makes the undisclosed principal a party where the agent acted with actual authority; **§ 6.05** caps exposure at the authorized amount where the contract differs only in amount or a separable part. And where the agent acted *without* actual authority, **§ 2.06** still reaches the undisclosed principal who knew of the conduct and did nothing — and bars reliance on secret limits that cut the agent below what a third party would expect of that role.

### Cowan v. Eastern Racing Association
**Restatement fit:** §§ 2.04, 7.07 · **Role:** CORE — employee vs. nonemployee agent

Respondeat superior turns on classification. **Every employee-agent is an agent; not every agent is an employee.** Agency answers whether one person acts on another's behalf; employee status adds the degree and type of control required for vicarious liability.

**Agency ≠ employee status. Employee status ≠ scope of employment.**

### Miguel v. Linden Motor Car Co.
**Restatement fit:** § 7.07(2) with § 2.04 · **Role:** CORE — scope of employment

Driver using a customer's car took a personal detour home for breakfast. Was the deviation incidental, or a sufficient departure that respondeat superior no longer attaches? This is where "frolic and detour" lives, though the Third Restatement states it functionally.

> ***Cowan* = WHO is an employee? *Miguel* = WHAT conduct is attributable?**

### Wright v. Kelleher
**Restatement fit:** § 1.02 + § 7.07 · **Role:** CORE — substance over label

The agreement calls the driver an independent contractor; the operational relationship shows employer control. The lesson is not that independent-contractor clauses are invalid. It is that **a contractual label does not itself determine legal classification.** Pairs directly with *Drummond* (Week 2): individual label vs. corporate/franchise disclaimer.

### M.G.L. c. 151A, § 2
**Role:** STATUTORY OVERLAY — deliberately doesn't fit the Restatement

"Employee" can be a statutory classification built for a particular regulatory regime.

> **The answer to "Is X an employee?" depends on why you are asking.** Common-law respondeat superior, unemployment benefits, and wage law can each answer differently on identical facts.

### Fortenbacher v. Commonwealth
**Restatement fit:** § 2.04 / Ch. 7 underneath; Massachusetts Tort Claims Act on top · **Role:** IMMUNITY OVERLAY

The MTCA makes public employers liable for negligent acts of public employees within the scope of employment, but preserves immunity for discretionary policy-making functions. Bridge-design decisions involved weighing alternatives and policy/planning judgment → immunity.

> **Employee + scope + negligence ≠ employer liability. Statutes can immunize the ordinary common-law result.**

### Dudley v. Massachusetts State Police, 91 Mass. App. Ct. 616 (2017)
*Citation-only assignment; not reproduced in the PDF.* **Role:** CONTRAST to *Fortenbacher*

A trooper released a trained police dog in a populated commuter lot. Held: implementation/operational conduct, not immunized policy planning.

| *Fortenbacher* | *Dudley* |
|---|---|
| Bridge design/planning | Tactical release of canine |
| Policy discretion | Operational implementation |
| Immunity | No discretionary-function immunity |

### Ruggiero v. American United Life Insurance
**Restatement fit:** § 1.02 as background only · **Role:** STATUTORY CLASSIFICATION

Ruggiero's agreement called him an independent contractor and gave him control over time, place, manner, and means. But his claim invokes G.L. c. 149, § 148B, which presumes employee status unless the employer proves **all three** prongs of the ABC test.

> ***Cowan/Wright* = common-law classification. *Ruggiero* = statutory classification.** Keep them in separate boxes.

### Week 1 compressed
**Step 1:** Is A an agent? → **Step 2:** Is the other actor a subagent, coagent, or independent? → **Step 3:** If tort liability is sought, is A an employee? → **Step 4:** Was the tort within scope? → **Step 5:** Does a statute redefine employee status or create immunity?

---

## WEEK 2 — AUTHORITY AND ATTRIBUTION
*Syllabus: "Rights and Duties," §§ 2.01–2.04 — but the book itself calls it "Agent's Powers," and Chapter 2 is the ALI's* Principles of Attribution. *Actual principal-agent duties are Chapter 8.*
*What you actually need: §§ 2.01–2.06, 3.01–3.03, Ch. 7 attribution; §§ 4.01/4.06 for* Wing

### Wing v. Lederer
**Restatement fit:** §§ 2.01–2.03, 3.01, 3.03, Ch. 4 · **Role:** THE MASTER AUTHORITY CASE

Run the entire sequence in order:

1. **Express actual authority** — what did Lederer actually tell Novera he could do?
2. **Implied actual authority** — what acts were reasonably necessary or incidental to that role? (In the Third Restatement this is not a separate species of authority; it is the **scope** of actual authority under § 2.02.)
3. **Apparent authority** — what did *Lederer* do that would cause Wing reasonably to believe a part-time yardman could order extensive tree work? Nothing; Wing had no relevant contact with Lederer.
4. **Ratification** — no. The trees were already altered before Lederer learned of the work; he had no meaningful opportunity to reject. **Ratification requires informed assent, not being stuck with an irreversible benefit.**

> **Sequence: actual authority — including what falls within its scope under § 2.02 — → apparent authority → estoppel (§ 2.05) → ratification. Never blend them.**

### Elliott v. Great National Life
**Restatement fit:** §§ 2.03 / 3.03 · **Role:** CORE — institutional conduct as manifestation

Where *Wing* shows insufficient principal manifestation, *Elliott* shows what sufficient evidence looks like: organizational conduct, delegated communication channels, prior dealings, the position assigned, and acquiescence can together create a reasonable third-party understanding.

Apparent authority does **not** require that the principal literally said "this person may bind me."

### Gizzi v. Texaco
**Restatement fit:** §§ 2.03 / 3.03; § 7.08 for tort consequences · **Role:** CORE — branding as manifestation

Manifestations need not be individualized. Advertising, signage, uniforms, trademarks, and a branded environment can communicate to the public. The lower court treated branding as categorically incapable of supporting the asserted authority; the appellate court held reasonable minds could differ → jury question.

Two elements, kept separate:
- **Manifestation:** what did Texaco communicate?
- **Reasonableness:** what authority would a reasonable customer infer from it? (A logo may suggest authority to service cars without suggesting authority to transact every imaginable business.)

### Drummond v. Hilton Hotel Corp.
**Restatement fit:** § 1.02 + control + § 2.03 + § 7.08 · **Role:** CAPSTONE — two theories at once

- **Theory A — actual agency/control:** the franchise contract disclaimed agency, but also gave Hilton inspection rights and operating standards. The disclaimer is evidence, not disposition.
- **Theory B — apparent agency:** the agreement required pervasive Hilton branding; whether Hilton held itself out as owner/operator is a fact question.

> **Internal agreement and external manifestation answer different questions.**

### Hoddeson v. Koos Bros.
**Restatement fit:** § 2.05 more than § 2.03 · **Role:** BOUNDARY — apparent authority vs. estoppel

An impostor "salesman" took the customer's money. The evidence described the *impostor's* behavior; the record contained no manifestation emanating from the store. Apparent authority therefore fails — it must derive from the supposed principal.

The court pivots: a store that negligently permits an impostor to operate conspicuously as a salesman may be estopped, or may be **directly negligent** for failing to protect customers.

- **Apparent authority:** P manifested authority.
- **Estoppel:** P's culpable act or omission created the appearance; T detrimentally relied.
- **Direct negligence:** P breached its own duty of care.

Neighbors, not synonyms.

### Cullen v. BMW of North America
**Restatement fit:** failed authority → Ch. 7 direct liability · **Role:** BOUNDARY

Actual and apparent authority both fail; plaintiff argues BMW negligently failed to supervise a financially unstable dealer. That is **BMW's own negligence**, not respondeat superior. The court rejects the asserted duty on these facts.

> Never write "the principal is liable for the independent contractor" without naming which theory gets you there.

### Barrow v. Dartmouth House Nursing Home, 86 Mass. App. Ct. 128
*Citation-only assignment.* **Restatement fit:** §§ 2.01–2.05 · **Role:** WEEK 2 CAPSTONE — scope of authority

A son helped his mother enter a nursing home and signed an **optional** arbitration agreement. Held: no actual or apparent authority to bind her to arbitration — she did not authorize it, was not present, made no manifestation, arbitration was not required for admission, and he never told her. Estoppel also failed.

> **An agency relationship is not a blank check. Authority is act-specific.** "Agent for admission matters" does not answer "authorized to surrender her right to litigate?"

### Week 2 as one rule tree
**Actual authority?** → if no, **apparent authority?** → if no, **estoppel?** → if no, **ratification?** → separately, **direct liability?**

*Wing* runs the whole tree · *Elliott* course of dealing · *Gizzi* public branding · *Drummond* two coexisting theories · *Hoddeson* estoppel after apparent authority fails · *Cullen* direct negligence · *Barrow* transaction-specific authority.

---

## WEEK 3 — FORMAL AUTHORITY + RATIFICATION
*Syllabus assigns only § 3.02 — but ratification is an entire separate chapter (Ch. 4). Split this week in half.*

### Part I — Equal Dignities / formal requirements

Where the doctrine applies, the underlying transaction requires a writing **and** the agent's authority must satisfy the same written form.

**Commission on Ecumenical Mission v. Roger Gray** — § 3.02 · THE ANCHOR.
A managing agent signed a lease extension; there was written evidence he was "Managing Agent." The majority holds the written designation insufficiently specific to confer authority to execute the extension. The dissent would infer authority from the designation plus a long history of negotiating and signing extensions.

> **Actual authority in fact** and **legally sufficient written evidence of authority** are different questions.

**Flynn v. Dugas** — Ch. 6 more than § 3.02 · SIGNATURE/CAPACITY.
Dugas crossed out "Personally and Individually," inserted the corporation's name, and signed as chairman/CEO. Held: he manifested intent to act only for the corporation. File this under Chapter 6 — **who are the parties to the contract?** — not under equal dignities.

**Bridge Enterprises v. Futurity Thread** — CRITIQUE CASE.
Devlin asks only whether the court applied the correct doctrine — a signal not to memorize it mechanically. A sales manager negotiated and signed a memorandum concerning a substantial lease. The real question is whether authority to **negotiate** implies authority to **execute and bind**. Mark it: *scope-of-authority problem disguised as an equal-dignities case.* Same lesson as *Barrow*.

### Part II — Ratification (Chapter 4)

Temporal structure: **t0** A acts without authority → **t1** P learns the material facts → **t2** P manifests assent rather than repudiating. This is fundamentally different from apparent authority, which asks what T reasonably believed **at the time of the transaction**.

**3A's Towing v. P&A Well Service** — §§ 4.01, 4.02, 4.06 · ANCHOR.
Corporate personnel with authority may ratify through knowing acquiescence and failure to repudiate timely. Acceptance of a benefit is evidence, not the exclusive means.

> Compare *Wing* (homeowner learns only after irreversible work → no genuine adoption) with *3A's* (organization has knowledge and acquiesces → ratification inferred). "Retained benefit" is not a magic incantation; the issue is **informed choice manifested by P**.

**Linkage Corp. v. Boston University** — § 2.03 + Ch. 4 · BEST CASE FOR KEEPING THEM SEPARATE.
A jury could find Meng had apparent authority *because of BU's treatment of him*, and separately that BU ratified after learning of the deal. Same facts, two analytically distinct theories:
- **Before execution:** what did BU manifest to Linkage?
- **After execution:** what did authorized BU officials do once they knew?

**Colony of Wellfleet v. Harris** — §§ 4.01, 4.06 · RATIFICATION + KNOWLEDGE.
Eleanor ratified by failing to repudiate within a reasonable time after gaining access to material facts; she and counsel had opportunities to discover the limitations and transaction history. Modern doctrine also refuses to let a principal exploit deliberate ignorance.

---

## WEEK 4 — TWO DIFFERENT SUBJECTS
*Syllabus: "Duration and Termination of Agency," §§ 3.06–3.11 — but the assigned cases are almost entirely employment-at-will law. Build two boxes.*

### Box A — Restatement termination of authority (§§ 3.06–3.11)

Authority ends by death, incapacity, agreement, changed circumstances, revocation, or renunciation. **Critically: termination of actual authority does not automatically terminate apparent authority.**

> P fires A on Friday. A has ordered from Vendor weekly for five years. Monday, A orders $50,000 of goods. Vendor received no notice. **Actual authority: gone. Apparent authority: potentially alive.** That is the § 3.11 exam problem, and no assigned case teaches it.

### Box B — Employment at will

**Thomas v. Ballou-Latimer Drug** — indefinite employment is terminable by either side; the question is whether the agreement and surrounding facts supported year-to-year employment. *What facts convert indefinite employment into a definite term?*

**Shenn v. Fair-Tex Mills** — CONTRAST. The agreement had a definite ending; the court refuses to infer a renewed annual contract from compensation structure and circumstances.

**Pine River State Bank v. Mettille** — CONTRACT OVERLAY. An employee handbook can modify an at-will relationship; the casebook itself flags the awkward fit with traditional contract-modification doctrine. Not a Restatement termination case at all.

**Monge v. Beebe Rubber** — the good-faith exception emerges: an at-will discharge motivated by bad faith, malice, or retaliation is actionable. (Devlin: *Monge* is about sex, *Maddaloni* about greed.)

**Maddaloni v. Western Massachusetts Bus Lines** — MASSACHUSETTS APPLICATION. Recovery of commissions attributable to *past services*. Massachusetts resists letting an employer use at-will termination to appropriate compensation already earned. Note the remedial limit: this does not convert an at-will employee into someone owed years of future compensation.

**Siles v. Travenol Laboratories** — LIMIT. The absence of a good reason for firing someone is not itself proof of bad faith. **Bad decision ≠ bad faith. Unfair-seeming termination ≠ actionable termination.**

**Brockmeyer v. Dun & Bradstreet** — JURISDICTIONAL CONTRAST. Wisconsin declines an amorphous good-faith requirement and adopts a narrow public-policy exception instead, expressly contrasting *Monge*/*Fortune*.

> Week 4's real arc: **at-will baseline → can contract change it? → should courts recognize bad-faith exceptions? → what remedies? → how broad should the exception be?** Coherent — just not §§ 3.06–3.11.

---

## WEEK 5 — NOTICE AND KNOWLEDGE (Chapter 5)

Three concepts to fix before the cases:

- **Notification (§ 5.02):** T communicates a fact to an agent **authorized to receive that kind of communication**. Legally effective as notice to P.
- **Imputed knowledge (§ 5.03):** A knows or has reason to know a material fact in connection with the agency; the law treats P as knowing it, whether or not A told P.
- **Adverse-interest exception (§ 5.04):** conduct sufficiently adverse to P defeats imputation — but the exception is **narrow**. There is also a separate exception where A owes another a duty not to disclose.

**Farr v. Newman** — §§ 5.02–5.04 · FOUNDATIONAL. Notice concerning real property given to an attorney acting for the purchaser. The legally significant act is **giving notice to an agent authorized to receive it** — not an evidentiary presumption that the lawyer surely told the client. So P cannot answer "A never told me." The case also distinguishes affirmative notification from information the agent independently discovers.
> **Exam question: did T communicate the information to A, or did A learn it elsewhere?** That picks your Chapter 5 pathway.

**R & D Muller v. Fontaine's Auction Gallery** — Ch. 5 + professional responsibility (§ 8.05 conceptually). Disqualification of counsel for a substantially related prior representation. Why here? Because imputation assumes information can properly travel through the relationship — and a lawyer may hold information subject to confidentiality duties to another client.
> Never apply "agent knows = principal knows" mechanically when the agent has a legal duty not to disclose.

**Southern Farm Bureau v. Allen** — §§ 5.03 → 5.04 · ADVERSE INTEREST/COLLUSION. The insurance agent had authority such that knowledge acquired in the transaction would ordinarily be imputed — but he participated in the insured's fraud against the insurer. The court refuses to let the colluding third party use the protective rule against the victimized principal.
> Normal rule protects innocent third parties. Exception denies that protection to the third party who colluded with A against P.

**Sutton Mutual v. Notre Dame Arena** — § 5.03 · CAPACITY. Not *whether* the corporate president knew of the accident, but **how and in what capacity** he learned it. A human's knowledge is not automatically organizational knowledge because the human happens to be an officer. One person may be director, officer, employee, shareholder, trustee, and private individual simultaneously — **which hat?**

**Black Elk / Nordlicht** — §§ 5.03–5.04 · BEST MODERN ANCHOR. The opinion quotes the Third Restatement directly. Defendants invoke adverse interest; the court stresses how narrow it is — the agent must essentially **abandon** the principal's interests and act solely for himself or another. A conflict of interest is not enough. Nordlicht committed fraud, but for the benefit of the defendant investors.
> "He's a bad actor" ≠ "he was adverse to *these* principals." Ask: adverse **to whom**, and **for whose benefit**?

**Lawrence Savings Bank v. Levenson** — §§ 5.03–5.04. Defendants argue the bank's authorized VP/loan officer's knowledge should be imputed; he retained counsel, made loans, attended closings — precisely his authorized functions. The complication is his entanglement in the misconduct. Pair with *Southern Farm* and *Black Elk* for progressively harder adverse-interest patterns.

**In re Color Tile** — §§ 5.02–5.03 + subagency · AGENCY-CHAIN CASE. **Principal → State Street Bank → DTC → Cede.** Imputation may operate through subagents; the question is whether DTC had an obligation *within the scope of its agency* to transmit the complaint up the chain.
> Never write "somebody in the organization knew." **Draw the chain**, and at every link ask: is there agency? what is its scope? was receiving/transmitting this within that scope?

**Georgia-Pacific v. Great Plains Bag** — § 5.02 · AUTHORITY TO RECEIVE NOTICE. Salespeople received the notice while acting as salespeople; the question is whether salespeople are authorized to receive *that kind* of communication. Contrast *Farr*: an attorney handling a real-estate acquisition plausibly is; a salesperson's authority to sell doesn't establish authority to receive every legally significant communication addressed to the corporation.

> Recurring theme of the entire course: **agency exists ≠ authority exists for every purpose.**

---

## WEEK 6 — LOYALTY, COMPETITION, AND RESTRICTIVE COVENANTS
*Syllabus assigns "Chapter 1." The operative doctrine is Chapter 8 — §§ 8.01, 8.04, 8.05, 8.06, 8.09 — plus G.L. c. 149, § 24L and ordinary contract law.*

Split this week into two bodies of law:

- **Default agency duties** — what A may not do *because A is an agent*.
- **Contract/statutory restraints after employment** — what a former employee may not do *because a valid contract or statute extends restrictions past termination*.

### The default rule (§ 8.04)
- **During the agency:** A may not compete regarding the subject matter of the agency, absent consent.
- **While still employed:** A may make nonwrongful **preparations** to compete later.
- **After termination:** the ordinary duty not to compete ends.
- **Always separate:** duties as to confidential information and principal's property (§ 8.05) survive independently.

> "I'm free to compete with you" ≠ "I'm free to take your trade secrets, customer files, or business opportunity."

**Arthur Murray Dance Studios v. Witter** — restrictive-covenant law; § 8.04 only as background. Once the agency ends, the default permits competition — so the employer needs a *contractual* restraint, and enforceability (scope, duration, geography) becomes the whole ballgame.

**DeVoe v. Cheatham** — LIMIT. Two questions in order: (1) does the former employer have a **protectable business interest**? (2) is the covenant **no broader than reasonably necessary** to protect it? Do not start by asking whether the employee signed something.

**First American Systems v. Rezatto** — § 8.05 vs. § 8.04 · CONCEPTUAL BRIDGE. Devlin states the doctrine nearly outright: there is a difference between **competing** and **competing unfairly**. Absent an enforceable noncompete, a former employee may compete — even next door. The live issue is trade secrets and confidential information.
> **Competition is activity. Confidential information is an asset/duty problem.**

**National Recruiters v. Cashman** — CONTRACT OVERLAY. Whether an employee who signs a noncompete *after* employment began received sufficient consideration (preexisting-duty problem). Side box: "formation/enforceability of restrictive covenant." Keep it out of your Chapter 8 loyalty outline.

**Maryland Metals v. Metzner** — §§ 8.01, 8.04 · THE § 8.04 ANCHOR. Employees prepared a competing shredder operation while still employed. The question is **when preparation crosses into disloyal competition**, and the opinion states both competing policies: the employer's entitlement to loyalty from trusted managerial employees, and the employee's practical need to prepare for lawful future competition.

**BBF v. Germanium Power Devices** — §§ 8.01, 8.04, 8.05 · CONTRAST. Devlin calls it a second corporate-opportunity case with a different result and says liability should be comparatively clear. The line was crossed.

The spectrum is more useful than the facts:

| Conduct while still employed | Status |
|---|---|
| Thinking about leaving | Fine |
| Forming plans, arranging financing, leasing future space | Usually permissible preparation |
| Soliciting customers | Danger zone |
| Using confidential principal information | Separate § 8.05 violation |
| Appropriating a business opportunity of P | Serious breach |

**NuVasive v. Day** — restrictive covenants + choice of law. Nonsolicitation and noncompetition provisions; the fight is whether Delaware law (selected by the agreement) or Massachusetts law governs. The district court enforced the nonsolicitation provision under the selected law. The question is not whether Day breached a fiduciary duty while employed — it is **what contractual restriction survives employment, and which state's law decides enforceability**.

**DraftKings v. Hermalyn** — G.L. c. 149, § 24L + conflicts · CURRENT CAPSTONE. Massachusetts choice-of-law clause, one-year noncompete, departure to Fanatics. The casebook contrasts Massachusetts (noncompetes permitted within statutory limits — garden leave/consideration, one-year cap, notice, no restraint on certain workers) with California (generally prohibited).

> ***Maryland Metals* asks what the common-law fiduciary duty permits before departure. *DraftKings* asks what a contract may legally prohibit after departure under modern statute and choice-of-law rules.** Different questions.

---

# PART II — LIENS AND THIRD-PARTY RIGHTS (WEEK 7)

*No Restatement assignment. This week is really **three** subjects: attorney's liens, priority of possessory liens against secured parties, and the doctrine of election — the last of which belongs conceptually back in Restatement Chapter 6.*

## The framework

Devlin frames liens as the self-help cousin of the substantial-performance rule: if the contract price is $10,000 and $100 of work remains, the non-breaching party's duty to pay arises but he may withhold the cost of cure. A **lien** is a charge on another's property securing payment of a debt.

| | **General / retaining / possessory lien** | **Charging lien** |
|---|---|---|
| Requires possession? | **Yes** — possession is the whole basis | **No** |
| Attaches to | Papers, files, funds, goods in hand | The judgment, decree, order, or fund the services produced |
| Nature | Passive; leverage only | Affirmative; enforceable claim on proceeds |
| Lost by | Surrendering possession (or by equitable order) | Not dependent on possession |

Two questions answer most of this week:
1. **Do you have possession?** (retaining lien) and
2. **Did your services create the fund or the property right?** (charging lien)

### Matter of Heinsheimer (Meyer v. Schulte) — Cardozo, N.Y. 1915
**Role:** THE ANCHOR — what a lien can and cannot attach to.

An attorney was retained as general counsel **at a salary**. He declined to surrender papers until arrears were paid — proper, because a retaining lien rests on possession. But there is **no lien, general or charging, on a claim for unpaid salary**: the salary claim is not a fund his services produced, and the papers he holds are not the judgment. He *did* try a case and recover a judgment; for that service a charging lien can attach to that recovery.

> **Sort the claim before you sort the lien.** A general retainer paid by salary is a debt; a contingent or service-specific recovery is a fund.

Devlin's hypothetical is the test: client signs a will, promises to pay tomorrow, never returns. You hold the will → **retaining lien** (possession), not a charging lien (no fund produced). If the client dies with the bill unpaid, ask what happens to the leverage when the document's whole value is that someone else now needs it.

### Upgrade Corp. v. Michigan Carton (Ill. App. 1980)
**Role:** THE RETAINING LIEN IS DEFEASIBLE.

Withdrawing counsel asserted a common-law retaining lien over litigation files. The court ordered the files turned over and substituted a **statutory lien** whose amount would be fixed on settlement or judgment.

> A retaining lien is not absolute property. Equity can convert it into a security interest in the eventual recovery when holding the files hostage would harm the client's case. Devlin's analogy: eminent domain — the taking is lawful even though you did nothing wrong.

### Gormley, P.C. v. Wilkins (Mass. App. Ct. 2002)
**Statute:** G.L. c. 221, § 50 · **Role:** WHAT THE STATUTORY LIEN ATTACHES TO.

The attorney sought to enforce a lien against a $40,000 escrow account created after a property sale under a divorce separation agreement. Held: **no lien.** The statute reaches a "judgment, decree or other order **in his client's favor**," and the escrow order was not in the husband's favor — it secured capital gains taxes and encumbrances, with the remainder reverting to the wife. Funds held in a neutral depository "for a special purpose ... inconsistent with the claim of lien" partake of a trusteeship. That the attorney's efforts increased the sale price does not create an order in his client's favor.

### Ropes & Gray LLP v. Jalbert (Mass. 2009)
**Role:** HOW FAR § 50 EXTENDS — certified questions from the First Circuit.

Held, **both yes**: (1) § 50 grants a lien on **patents and patent applications** for patent-prosecution work — not just litigation judgments; and (2) the lien attaches to the **proceeds of a sale** of those rights. The "proceeds derived therefrom" clause relates back to all preceding clauses, and the legislative purpose — protecting the unpaid attorney — would be frustrated otherwise.

> **Pair *Gormley* and *Ropes & Gray*:** § 50 is read broadly as to the *kind of property* the lien can reach, and strictly as to whether the thing is genuinely **in the client's favor**.

### Gangloff Industries v. Generic Financing & Leasing (Ind. App. 2009)
**Role:** POSSESSORY LIEN vs. SECURITY INTEREST — the UCC layer.

Two steps: (1) the "Lease Agreement" for the semi-truck was in substance a **security interest**, not a true lease (economics control, not the caption — the Week 8 label lesson arriving early); (2) under UCC § 9-333, a **possessory lien** securing payment for services or materials furnished in the ordinary course, created by statute or rule of law and dependent on possession, **has priority over a security interest** unless the lien statute expressly says otherwise. Indiana's towing statute was silent → Gangloff wins.

### Commerce Acceptance of Oklahoma City v. Press (Okla. 1967)
**Role:** SAME RULE, OLDER VOCABULARY.

Garageman towed, repaired, and stored a car and retained possession; the plaintiff held a previously recorded chattel mortgage. Held: the **possessory lien has priority over the prior perfected security interest** while possession continues. Note the wrinkle the court preserves: the **storage** component was sustained because the owner requested it — the lien follows the services actually authorized.

> **Common thread of *Gangloff* and *Commerce Acceptance*:** the person who preserved or improved the collateral, and who still holds it, beats the paper creditor. Let go of the goods and you generally let go of the lien.

## Third-party rights and the doctrine of election

Devlin's own transition sets it up: if a third party is injured by an agent's negligence, the agent is liable in tort and the principal under respondeat superior. If a third party contracts with an agent for an undisclosed or partially disclosed principal, **both** are liable — but there can be only one recovery.

### Williams v. Investors Syndicate (Mass. 1951)
**Restatement fit:** Ch. 6 (undisclosed principal; election) · **Role:** THE TRAP.

Bradford was found to be a "straw" — i.e., holding land **as agent** for Investors, an undisclosed principal. On discovering the principal, the plaintiff could have proceeded against **either** the agent **or** the principal, but not both jointly. He took a judgment against the agent and then tried to enforce it against the principal. Held: he cannot. Having reduced his alternative claim to judgment against the agent, he cannot treat that judgment as a cause of action against the principal. (The court also found the record failed on the underlying unjust-enrichment proof.)

> **Rule as the case states it:** merely *filing* against the agent before discovering the principal is not a conclusive election — but **taking judgment** is. Devlin calls it "a trap for the unwary, and a windfall to either the agent or the principal, depending upon who the plaintiff decided to go after."

> ⚠ **SOURCE STATUS — HISTORICAL RULE, IN CONFLICT WITH REST. (THIRD) § 6.09.** The Third Restatement rejects election: a judgment against either the agent or the principal does **not** discharge the other, and liability is discharged only to the extent a judgment is actually **satisfied**. Do not carry *Williams* forward as a statement of modern agency doctrine.
>
> Both propositions are worth knowing, and neither cancels the other. The Restatement is persuasive authority, not binding law; *Williams* is a Massachusetts decision the SJC has not disavowed. On an exam, state the election rule the case applies, then state § 6.09, then say which source governs the jurisdiction you are in. That is a stronger answer than either rule alone — and it is exactly the kind of thing Devlin's "was the case correctly decided?" question is fishing for.

**Exam trigger:** any fact pattern with a straw, a nominee, an undisclosed owner, or an entity used to hold title. Ask (1) is the straw an agent, (2) is the principal undisclosed, (3) has the plaintiff already elected, and (4) is a veil-piercing theory (Week 12) available instead.

---

# PART III — PARTNERSHIP (WEEKS 8–9)
*G.L. c. 108A (Uniform Partnership Act)*

## The partnership framework

A partnership is **an association of two or more persons to carry on as co-owners a business for profit** (§ 6). Key structural facts Devlin emphasizes:

- **No formalities are required.** Bring one person into your sole proprietorship as a co-owner and you have converted it into a partnership — intended or not.
- **Partners are agents of one another and of the partnership.** Everything from Weeks 1–6 applies: a partner generally has apparent authority to bind the partnership in the ordinary course of its business (§ 9).
- **Absent agreement, each partner has an equal right to manage** (§ 18(e)) — so a two-person partnership with no tiebreaker produces deadlock, and deadlock produces litigation.
- **c. 108A is a default statute.** Most partnership case law exists because nobody drafted an agreement.

### § 7 — the classification rules
Receipt of a **share of the profits** is prima facie evidence of partnership, **unless** received as payment of a debt, wages, rent, an annuity, interest on a loan, or consideration for sale of goodwill. Co-ownership of property and sharing gross returns do **not** by themselves establish a partnership.

### The provisions the cases turn on

| Section | Rule | Case |
|---|---|---|
| § 6 | Definition — co-owners of a business for profit | *Kaufman-Brown*, *Vohland* |
| § 7 | Rules for determining existence; profit-sharing presumption | *Martin v. Peyton* |
| § 9 | Partner as agent; apparent authority in ordinary course | *Nabisco* |
| § 13/§ 15 | Partnership liable for partner's wrongful act; joint and several liability | *Roach v. Mead* |
| § 16 | Partnership by estoppel | *Amory* |
| § 17 | Incoming partner liable for prior obligations **only out of partnership property** | *8182 Maryland* |
| § 18(e), (h) | Equal management; ordinary matters decided by majority; no majority can override the agreement | *Nabisco* |
| § 21 | Duty to account for benefits and profits | *Meinhard*, *Meehan*, *Gibbs*, *Monin* |
| § 31 | Dissolution — including by express will of any partner where no definite term | *Johnson*, *Tropeano* |
| § 38 | Rights on dissolution; liquidation | *Dreifuerst*, *Prentiss* |
| § 40 | Distribution priority — **creditors before partners** | *Kaufman-Brown* |

---

## WEEK 8 — IS THERE A PARTNERSHIP?

### Kaufman-Brown Potato Co. v. Long (9th Cir. 1950)
**Role:** CLASSIFICATION WITH REAL STAKES.

Kaufman and Brown financed a potato-growing operation and filed as **creditors** in bankruptcy. If they are creditors, they get paid; if they are partners, § 40 drops them below creditors — **and** § 15 exposes them to joint liability for the firm's debts. The court found the essentials of a partnership: advances beyond contract requirements, presence on the ground, recommendations on operations, profit participation, and access to books.

> Method: take each fact and ask whether it is consistent with creditor status, partner status, or both. Then ask the fundamental question — **did they act as co-owners of a business carried on for profit?**

### Martin v. Peyton (N.Y. 1927)
**Role:** THE OTHER SIDE OF THE SAME LINE.

Lenders advanced securities to a failing brokerage and took a profit share, option rights, veto powers, resignations held in escrow, and extensive reporting. Held: **creditors, not partners.** Cardozo-era language worth memorizing: *"Mere words will not blind us to realities. Statements that no partnership is intended are not conclusive."* But **control taken as security for a loan is not co-ownership**.

> Devlin's moral: the more security and control a lender takes, the closer it comes to being transformed from creditor into partner. *Kaufman-Brown* and *Martin* are the two poles; the exam fact pattern will sit between them.

### Frank v. R.A. Pickens & Son (Ark. 1978)
**Role:** PARTNERS NEED NOT BE EQUAL.

A 22-partner farming operation, managed by one man since 1937, with a small minority interest, no meaningful voting power, and a **book value** buyout on withdrawal. Held: still a partnership. Partners may structure profit shares, management rights, and buyout formulas as they like.

> Two exam hooks: (1) unequal rights do not defeat partnership status; (2) **book value is a drafting choice with enormous consequences** — it typically excludes goodwill and appreciation, so it can be a fraction of fair value. Compare *Johnson v. Kennedy* on going-concern value.

### Fenwick v. Unemployment Compensation Commission (N.J. 1945)
**Role:** WHO IS ASKING? — the partnership analogue of *Ruggiero*.

A beauty-shop receptionist signed an agreement calling her a partner, entitling her to a 20% profit share, while she kept her $15/week salary, contributed no capital, bore no losses, had no management rights, and had nothing to divide on dissolution. Held: **an employee** — and therefore the eighth employee that brought Fenwick within the unemployment compensation statute.

The factor list to carry forward: **intention; profit sharing; loss sharing; capital contribution; control/management; conduct toward third parties; rights on dissolution.**

> Devlin flags the court's reference to the alleged partner as a "girl" — the opinion's own vocabulary discloses how it had already classified her. Worth noting for the "was this correctly decided?" question.

### Vohland v. Sweet (Ind. App. 1982)
**Role:** SUBSTANCE OVER LABEL.

Sweet received 20% of **net profits** — after every expense — from a nursery landscaping business, paid irregularly at joint settlements, and shared in the enterprise's risk. Called a "commission"; held a **partnership**. The court's language is the rule: the intent that matters is the **intent to do the things that constitute a partnership**, and parties will be partners notwithstanding an express stipulation that they are not.

> ***Fenwick* vs. *Vohland*:** both involve a 20% profit share. The difference is co-ownership of the *business* — its risks, its expenses, its net. Percentage alone decides nothing.

### Humble Oil & Refining v. Martin (Tex. 1949) and Hoover v. Sun Oil (Del. Super. 1965)
**Role:** THE CONTROL PAIR — really Week 1's *Cowan/Wright* question inside a franchise.

| | **Humble Oil** | **Hoover v. Sun Oil** |
|---|---|---|
| Result | Oil company **liable** | Oil company **not liable** |
| Financial arrangement | Humble paid a large share of operating expenses; set hours; required reports | Barone kept his own profits, set his own hours, hired and paid his own staff |
| Control | Over the **details** of day-to-day operation | Over **results** only — Sun's representative advised, did not direct |
| Classification | Agent/employee-type relationship | Landlord–tenant and independent contractor |

> **The test both courts apply: did the oil company retain the right to control the details of day-to-day operation?** Influence over results is not enough. Read these alongside *Drummond* — the branded-premises problem recurs across the whole course.

### Amory v. Checroune (Mass. App. Div. 2004)
**Role:** PARTNERSHIP BY ESTOPPEL — and a pleading lesson.

The architect's proposal went to Checroune, Atlan, and "South Shore Realty Investors"; Atlan signed the acceptance line; the LLC had been formed days earlier. Checroune defended on **agency** — he acted only for a disclosed principal. The plaintiff won on **partnership by estoppel** (§ 16): where a person represents himself, or consents to being represented, as a partner in an existing entity, he is liable to one who extended credit in reliance.

> Devlin's question is the practical one: what would you have advised Checroune to do? Answer: **disclose the principal fully and unambiguously in the writing**, sign in a representative capacity (see *Flynn v. Dugas*), and never let a trade name float free of the entity.

### Tropeano v. Dorman (1st Cir. 2006)
**Role:** TERM PARTNERSHIP → PARTNERSHIP AT WILL.

The 1964 two-page agreement created a partnership "for the term of thirty years." The partners kept operating the apartment complex well past 1994. Once the stated term expires and the business continues, the partnership becomes a **partnership at will**, dissolvable by any partner at any time, for any reason — which triggers winding up, liquidation, and distribution.

> The drafting moral of the entire partnership unit sits in this case: **a term you never renewed is a term that expired**, and with it went every partner's protection against unilateral dissolution.

---

## WEEK 9 — DUTIES, MANAGEMENT, AND DISSOLUTION

### The duty spine
Partners are agents of one another and of the partnership. Therefore Chapter 8 of the Restatement maps directly: no profiting at the principal's expense, duty to disclose, no use of confidential information, no competing, no conflicting interests — plus UPA § 21's duty to account.

### Meinhard v. Salmon (N.Y. 1928)
**Role:** THE CHESTNUT — the high-water mark of fiduciary duty.

Salmon, the managing coadventurer of a twenty-year lease on the Bristol Hotel, took the lessor's new and much larger project for his own corporation without telling Meinhard. Cardozo: joint adventurers owe "the duty of the finest loyalty" — "not honesty alone, but the punctilio of an honor the most sensitive." The opportunity came to Salmon **because he was the manager** and was "an extension and enlargement" of the subject matter of the venture.

Devlin's variations are the real study tool:
- Salmon's brother pitches an **alligator ranch in Florida** → outside the scope of the enterprise; no duty to offer.
- Salmon hears of nearby NYC real estate **on the subway** → harder; the question is whether the opportunity came to him in his capacity as manager and whether it is an enlargement of the venture's subject matter.
- What should Salmon have done? **Disclose and offer.** Or contract for the right in advance, in writing.

> "Thought of self was to be renounced, however hard the abnegation."

### Meehan v. Shaughnessy (Mass. 1989)
**Role:** THE MODERN, SOFTER STANDARD — departing partners.

Meehan, Boyle, and Cohen left Parker Coulter and sued for amounts owed under the partnership agreement; the firm counterclaimed for breach of loyalty. The court held that **preparing to leave is permissible** — logistical arrangements, securing space, even deciding which cases to pursue — but the partners breached by **unfairly acquiring consent** from clients: they delayed and were misleading about their plans, denied rumors when asked directly, and used the firm's resources to prepare client letters sent before the firm could respond.

Remedies matter here: they still recover what the agreement owes them, but the burden shifts to the departing partners to prove the clients would have followed them anyway.

> Devlin's provocation: compare Cardozo's *"thought of self was to be renounced"* with *Meehan*'s "obliged to consider their co-partners' welfare, and not merely their own." **Which one do you agree with?** That is a likely exam essay.
> What should MBC have done? Give notice first, then solicit; send a **joint letter** giving clients a genuine choice; never deny plans when asked directly.

### Gibbs v. Breed, Abbott & Morgan (N.Y. App. Div. 2000)
**Role:** THE CONFIDENTIAL-INFORMATION HALF OF THE SAME PROBLEM.

Two trusts-and-estates partners circulated an internal memorandum containing confidential firm employment data — compensation and the firm's own valuation of each employee — to a competitor while still partners, then recruited staff before giving notice. Held: **breach of the duty of loyalty**, even though partners may generally invite qualified personnel to move with them. The vice was the disclosure of confidential firm data and the secrecy that deprived BAM of the chance to retain its own people.

> ***Meehan* is about clients; *Gibbs* is about employees and information.** Together they define what "preparation" may not include. Note how precisely this tracks Restatement §§ 8.04 vs. 8.05 from Week 6.

### National Biscuit Co. v. Stroud (N.C. 1959)
**Role:** MANAGEMENT AND APPARENT AUTHORITY — the deadlock case.

Two equal partners in a grocery. Stroud told Nabisco he would not be responsible for further bread; Freeman ordered anyway. Held: **Stroud is liable.** Bread purchases were within the ordinary course; under UPA § 18(e) and (h) each partner has equal management rights, and **a "majority" of one out of two is no majority at all.** One partner cannot unilaterally restrict a co-partner's ordinary-course authority.

> Where does that leave Stroud? With exactly one real option: **dissolve** the partnership (and give notice to creditors — the § 3.11 apparent-authority-after-termination problem from Week 4). The drafting lesson is a tiebreak mechanism.

### Roach v. Mead (Or. 1986)
**Role:** VICARIOUS LIABILITY AMONG PARTNERS.

Mead borrowed money from a longstanding client and did not repay; the client sued Mead's partner. Held: **the partner is vicariously liable.** The client reasonably relied on Mead for legal advice about the loan, and a lawyer who fails to advise a client to obtain independent counsel, to secure the loan, and about a usurious rate has committed **legal malpractice within the scope of the partnership's business**.

> This is UPA § 13/§ 15 doing exactly what Restatement § 7.07 does — recharacterize the transaction as a failure to perform the *professional* duty and it lands inside the scope of the firm's business.

### Prentiss v. Sheffel (Ariz. 1973)
**Role:** DISSOLUTION SALE — may the excluders buy?

Two majority partners in a three-partner partnership at will excluded the third, then sought dissolution and bought the assets at the judicially supervised sale. Held: **permissible**, absent a showing that the exclusion depressed the price or worked a fraud — indeed their bidding raised the price the minority received.

> Devlin's question is the sharp one: **what is a 15% voting interest actually worth?** Answer: whatever the agreement gives it. Without protective provisions, very little.

### Monin v. Monin (Ky. App. 1989)
**Role:** THE DUTY SURVIVES INTO WINDING UP.

Two brothers hauling milk agreed to dissolve and auction the partnership's assets, including the milk routes, subject to the customer's approval. Charles won the auction at $86,000; on the same day Sonny had already positioned himself with the producers, who voted to make **him** their hauler. Held: **breach of fiduciary duty.**

> **The fiduciary duty does not end at the notice of dissolution.** It runs through winding up. What should Sonny have done? Not competed for the very asset being sold — or disclosed and bargained for that right in the sales agreement.

### Johnson v. Kennedy (Mass. 1966)
**Role:** WRONGFUL vs. RIGHTFUL DISSOLUTION, AND VALUATION.

An oral insurance-agency partnership, no stated duration → **partnership at will**. Kennedy's termination, "however unseemly in manner and method, was not a legal wrong" (§ 31(1)(b)). An unexecuted draft specifying twenty-five years did not change the existing partnership's nature. On accounting: because the firm was not to continue, the master's $25,000 **going-concern/goodwill valuation had no basis** — the assets are valued as a firm being wound up, not as a continuing enterprise.

> Devlin's framing: Kennedy is unsavory, but **is unsavory a breach?** The answer is generally no absent a specific fiduciary violation. Nastiness is not a cause of action.

### Dreifuerst v. Dreifuerst (Wis. App. 1979)
**Role:** THE REMEDY — you can force a sale.

Three brothers, two feed mills, no written articles. On rightful dissolution of a partnership at will, a partner who has **not** wrongfully dissolved has the right to wind up — and therefore the right to **force liquidation by actual sale**. The trial court could not appraise the assets and order the others to pay the appellant in cash for his share.

> **Rule to memorize:** absent agreement, in-kind distribution cannot be imposed on a non-wrongful partner. A sale is the best evidence of fair market value. The hardship this causes is avoidable only by a partnership agreement.
> Pair with *Prentiss*: the partners who want the business can bid for it — but they must actually bid.

### 8182 Maryland Associates v. Sheehan (Mo. 2000)
**Role:** WHO IS LIABLE ON A LONG-TERM OBLIGATION AS PARTNERS COME AND GO.

A law firm's long-term lease. The organizing principle: **when a partner withdraws or a new partner is admitted, the existing partnership dissolves and a new partnership is created.** Debts of the old partnership may become debts of the new one, but they remain the **personal** obligations of the old partnership's partners.

- **Incoming partners** (§ 17 / § 358.170): liable for pre-admission obligations **only out of partnership property** — not personally.
- **Withdrawing partners:** not personally liable for rent accruing after their withdrawal where the breach occurred later; the landlord must look to the partnership it contracted with and the assignees.
- The lease implicates both **privity of contract** and **privity of estate** — which one you're in determines the answer.

> **Exam trigger:** any long-term lease, note, or service contract signed by a firm whose composition changed. Draw a timeline of admissions, withdrawals, and the date of breach.

---

# PART IV — LP, LLP, AND LLC (WEEK 10)
*G.L. c. 109 (limited partnerships) · G.L. c. 156C (limited liability companies)*

## The framework

Devlin's core point: limited partners are limited **twice**. They enjoy **limited liability** — they can lose their investment and no more — but they pay for it by being **excluded from management**. They are passive investors, like a shareholder with five shares of Microsoft. General partners have unlimited liability and run the business.

That trade-off generates the entire week's litigation, in two directions:

1. **What duties does the manager (GP or LLC manager) owe the passive investors?** — *Bassan*, *Harbison*, *Knapp*, *Fronk*
2. **What does the entity statute actually deliver?** — *Puleo*, *Milliken*, *Pierce*, *Rapoza*

Modern wrinkle worth flagging: the historic "control rule" (a limited partner who participates in control forfeits limited liability) has been progressively narrowed, and LLPs and LLCs collapse the old distinction altogether — which is why Devlin says in the corporations introduction that the "creature of statute" vs. "de facto entity" distinction has become "essentially meaningless."

### Bassan v. Investment Exchange Corp. (Wash. 1974)
**Role:** GP SELF-DEALING AND THE MECHANICS OF CONSENT.

The sole general partner sold his own land to the limited partnership at a profit. The partnership articles allowed limited partners to consent to such a profit **only after the sale**. Held: consent **could not be implied** from the limited partners' conduct after they learned of the profit, and the general partner is **accountable for the profit**.

> The rule is not "self-dealing is forbidden." It is: **self-dealing is permitted only on the terms the agreement specifies, with informed consent given in the manner and at the time the agreement requires.** Silence and acquiescence are not consent.
> Devlin's comparison question — closer to *Meinhard* or *Meehan*? — is worth answering both ways.

### Puleo v. Topel (Ill. App. 2006)
**Role:** THE STATUTE MEANS WHAT IT SAYS.

Thinktank LLC was **involuntarily dissolved** for failing to file an annual report; the manager kept doing business and incurring obligations. Under the corporate statute, that conduct would expose him personally. But the legislature had **amended** the LLC Act to remove the provision importing corporate-style personal liability. Held: **no personal liability** — the court expressly acknowledged the result was inequitable and said it was bound by the statutory language.

> **Never reason from corporate law to LLC law by analogy.** Read the LLC statute. The gaps are the point.

### Harbison v. Strickland (Ala. 2004)
**Role:** THE OPERATING AGREEMENT IS THE SOURCE OF DUTY.

The manager (17% owner) sold LLC real property. The operating agreement required managers to act in the best interest of the LLC and its equity owners, and barred any action having a **material adverse effect** on a similarly situated group of equity owners without consent. Summary judgment for the manager was **reversed**: the trial court's view that she could dispose of LLC property as she saw fit was irreconcilable with the agreement's text, and she produced no evidence she considered the LLC's interests.

### Knapp v. Neptune Towers Associates (Mass. Super. 2007)
**Role:** THE MIRROR IMAGE — where the agreement authorizes the conduct.

Class A limited partners sued the general partners over the sale of a 334-unit housing property, and sued the partnership's attorney. Held for the defendants: the general partners **ran Neptune Towers and did nothing not authorized by the Partnership Agreement**; and the attorney was not engaged by the limited partners, was not their counsel, and owed them no fiduciary, common-law, or contractual duty.

> **Two rules:** (1) conduct authorized by the agreement is generally not a breach; (2) **entity counsel represents the entity**, not its individual investors. That second point recurs in *Rapoza* and matters enormously in practice.

### Fronk v. Fowler (Mass. App. Ct. 2008)
**Role:** CONTRACTING AROUND *MEINHARD*.

Limited partners sued the general partners for buying large neighboring parcels without them and for related-party fees. Held for the general partners: **the limited partnership agreement expressly allowed those actions.** The judge also found the fees reasonable and within market rates — and noted that even if the *Starr v. Fordham* burden of proving fairness fell on the defendants, they met it.

> ***Meinhard* is a default rule, not a mandatory one.** With sufficient specificity, an agreement may authorize what would otherwise be usurpation of a partnership opportunity. Compare *Bassan*, where the agreement's own procedure was **not** followed.
> Note the burden-shifting principle for your outline: **once self-dealing is shown, the fiduciary bears the burden of proving fairness.**

### Milliken & Co. v. Duro Textiles, LLC (Mass. 2008)
**Role:** SUCCESSOR LIABILITY — the LLC as a debt-shedding device.

A creditor of Old Duro pursued New Duro after Patriarch Partners acquired the assets while leaving unsecured trade debt behind. The claims: **de facto merger** and **mere continuation**. The traditional factors: continuity of ownership, management, personnel, physical location and business operations; cessation of ordinary business and dissolution of the predecessor as soon as practicable; assumption of the liabilities necessary to continue uninterrupted; continuity of shareholders. On the c. 93A count, the SJC held the requisite **commercial relationship** between Milliken and the acquiring entities was absent.

> **Exam trigger:** an asset purchase that leaves the operating business intact and the creditors behind. Ask whether this is a genuine arm's-length asset sale or a merger wearing a purchase agreement. Pair with *Nissen v. Miller* (Week 12).

### Pierce v. Morrison Mahoney, LLP (Mass. 2008)
**Role:** LLP PARTNERSHIP AGREEMENTS AND RULE 5.6.

Under *Pettingell*, a provision imposing adverse financial consequences **only on withdrawing partners who compete** is unenforceable — it violates the policy protecting clients' choice of counsel (Rule 5.6). Morrison Mahoney then amended its agreement to impose **identical** consequences on **all** voluntarily withdrawing partners, competing or not. Held: **no violation.** Forfeiture of the plaintiffs' accrued interests did not offend Rule 5.6, because it was not tied to competition. The court reserved the question for partners who had reached the age-sixty or twenty-year benchmarks.

> **Neutral provisions survive; competition-triggered provisions don't.** Practically: the drafting fix for a disfavored restriction is often to make it apply evenhandedly.

### Rapoza v. Talamo (Mass. Super. 2006)
**Role:** JUDICIAL DISSOLUTION — deadlock in an LLC.

Two ophthalmologists practiced through an LLP and two LLCs, **with no written operating agreements**. Total deadlock between the only two members/managers. Under **G.L. c. 156C, § 44**, the court may decree dissolution "whenever it is not reasonably practicable to carry on its business in conformity with the certificate of organization or the operating agreement." Held: dissolution of the partnership and both LLCs.

> ***Nabisco* deadlock, modern entity.** Same disease, same cure. And the same drafting moral: two-member entities need a tiebreak, buy-sell, or exit mechanism, or the courthouse becomes the mechanism.

---

# PART V — CORPORATIONS (WEEKS 11–14)
*G.L. c. 156D · Del. Gen. Corp. Law · M.R.C.P. 23.1*

## The framework

Devlin's introduction lays the foundation:

- Corporations are **creatures of statute**; documents must be filed. Acts within statutory power are **intra vires**; acts beyond it are **ultra vires**, and directors may answer to shareholders for allowing them.
- **The corporation is the principal; directors, officers, and employees are its agents.** Respondeat superior runs against **the corporation**, not against individual officers and directors.
- The essence of the corporate form is the **divorce of ownership from control**. As a partner, you may hire and fire in the ordinary course; as a shareholder of Microsoft, you may not do anything.

That separation generates the next four weeks: **who decides (Week 11), when is the shield removed (Week 12), what happens when the shareholders are really partners (Week 13), and how do shareholders police the decision-makers (Week 14)?**

---

## WEEK 11 — THE BUSINESS JUDGMENT RULE

### The rule
Directors making a business decision are presumed to have acted **on an informed basis, in good faith, and in the honest belief that the action was in the corporation's best interests**. Courts do not second-guess the merits. But the presumption **evaporates** where there is fraud, illegality, self-dealing, gross uninformedness, or waste.

The structure to carry:

| Layer | Question | Standard |
|---|---|---|
| Duty of care | Was the decision informed? | Gross negligence; directors may rely on experts |
| Duty of loyalty | Was any decision-maker interested? | Entire fairness / burden shifts to fiduciary |
| Waste | Could any rational person have made this exchange? | Extremely deferential, rarely met |

### A.P. Smith Mfg. Co. v. Barlow (N.J. 1953)
**Role:** CORPORATE POWER — *ultra vires* and corporate purpose.

A corporate donation to Princeton, challenged by shareholders. Held **intra vires**, relying on the enabling statute and on the modern view that corporate philanthropy serves long-term corporate interests.

> Devlin's discomfort is the exam question, not the holding: the board is giving away **shareholders' money** to **the board's** favorite charities. Could your bank do that with your checking account? Ask who decides how shareholder wealth is best maximized — every shareholder (that would be a partnership) or the board? And how much leeway does the board get?

### Bayer v. Beran (N.Y. 1944)
**Role:** WHERE THE BJR STOPS — the loyalty overlay.

Celanese's radio-advertising program featured the president's wife, a singer. The court applied the business judgment rule to the *decision to advertise* — that is an ordinary business judgment — but held that the involvement of a director's relative **subjects the transaction to a stricter test**, taking it out of the rule's ordinary protection and requiring the directors to show good faith and inherent fairness. On the facts, no liability: the program served corporate purposes and the wife's compensation was reasonable. The Dreyfus employment payments were likewise upheld.

> **Rule:** the business judgment rule protects *judgment*, not *self-interest*. The moment a fiduciary is on both sides, the analysis changes from deference to fairness.

### Shlensky v. Wrigley (Ill. App. 1968)
**Role:** THE STRONG FORM OF DEFERENCE.

Wrigley refused to install lights and play night baseball, allegedly for reasons about the neighborhood rather than profits, while the Cubs lost money. Dismissal affirmed: absent allegations of **fraud, illegality, or conflict of interest**, courts will not interfere; directors may consider long-term effects (neighborhood deterioration and the value of the property) and mere allegations of unwise judgment don't state a claim.

> Devlin's question: is the business judgment rule a sliding scale? Read *Shlensky* against *Bayer*: **the more self-interested or irrational the transaction, the more the board must justify.** Pleading matters — *Shlensky* fails at the complaint stage for lack of particularized allegations, which is exactly the problem that dominates Week 14.

### Menard, Inc. v. Dage-MTI, Inc. (Ind. 2000)
**Role:** AGENCY LAW RETURNS — the president's inherent authority.

Dage's president signed a $1,450,000 land sale representing that he had authority; the board had reserved final approval and refused to close. Held: **the president possessed inherent authority to bind the corporation**, because he had operated the company for years with little board involvement and Menard had **no notice** of the limitation. The dissent's objection is powerful and worth quoting on an exam: the buyer knew the deal had to go to the board, it went to the board, the board said no — and the court enforced it anyway.

> ⚠ **SOURCE STATUS — SUPERSEDED VOCABULARY.** "Inherent agency power" comes from Restatement (Second) § 8A. The Third Restatement **deliberately abandoned it** as an independent concept, routing the same problems through apparent authority (§§ 2.03, 3.03), estoppel (§ 2.05), and — for undisclosed principals — § 2.06. The outcome in *Menard* is reachable under § 2.03 or § 3.03: the board placed Sterling in a position that customarily carries authority to sell, and Menard had no notice of the internal limit.
> The durable proposition survives the relabeling: **internal limitations do not bind third parties without notice.** Just don't write "inherent authority" on an exam as though it were current Restatement doctrine.

### Burg v. Horn (2d Cir. 1967)
**Role:** CORPORATE OPPORTUNITY — the narrow reading.

The Horns, majority stockholders and managing officers of a small realty corporation, bought Brooklyn buildings for themselves. Held: **not corporate opportunities**, given that Burg knew when she invested that the Horns already owned and continued to acquire similar properties; there was no agreement to offer everything to Darand, and the corporation lacked interest or expectancy in the specific properties.

The dissent applies *Meinhard* directly: officers whose primary function was locating properties were obliged to offer them to the corporation first, especially where corporate funds were used.

> **The line-of-business test is not mechanical.** In a close corporation formed against a known background of other activities, the parties' expectations shape the duty. This is the same structural point as *Fronk*: **expectations at formation can narrow the default fiduciary duty.**

### Boylan v. Boston Sand & Gravel (Mass. Super. 2007)
**Role:** SELF-DEALING PLUS THE MASSACHUSETTS DEMAND PROCEDURE.

The board authorized a subsidiary to lease a mined-out 42-acre parcel to a company owned by two of its own officers/directors, with an option to buy, at $2,000/month — plus a trucking arrangement with another affiliate. Summary judgment **denied** on the fiduciary-duty and contract claims; the court ordered an evidentiary hearing on whether the disinterested directors' 2006 **ratification** satisfied the three-tier *Houle* test.

> Massachusetts practice point: when a disinterested board refers a demand to a disinterested committee, **both** receive the protection of the business judgment rule — but the court still tests the process. This is the Massachusetts counterpart to *Zapata*, *Alford*, and *Cuker* in Week 14.

---

## WEEK 12 — PIERCING THE CORPORATE VEIL

### The framework
The general rule is absolute and encouraged: **incorporate and your liability is limited.** Sue the corporation, not the owner. Piercing is equity's exception, and it is deliberately ill-defined. Devlin's honest framing: the cases give you *guidelines* (lack of corporate formalities) and *buzzwords* ("confused intermingling of assets"), but the area "is by no means clear."

**The two-step architecture common to nearly every jurisdiction:**

1. **Unity of interest and ownership** such that separate personalities no longer exist — evidenced by failure to maintain records or observe formalities, commingling of funds and assets, undercapitalization, treating corporate assets as one's own; and
2. **Fraud or injustice** if the acts are treated as those of the corporation alone. Bankruptcy of the corporation alone is **not** enough.

**Massachusetts (*My Bread*)** is stated as a disjunctive: (a) common control **plus** a fraudulent or injurious consequence, **or** (b) **confused intermingling** of activity among corporations in a common enterprise with substantial disregard of separate entities, or serious ambiguity about the manner and capacity in which the corporations and their representatives are acting.

**Contract vs. tort** is the analytical fault line Devlin emphasizes: a contract creditor can investigate capitalization and demand a personal guaranty; a tort victim cannot. So **undercapitalization should carry more weight in tort cases, and formalities less.**

### The cases as a spectrum

**Zempel v. Liberty (Mont. 2006)** — the threshold question of *which forum and which defendant*. A bar operating on a reservation, a corporation, a tribal-member sole shareholder, and a nonmember plaintiff. Held: the tribal court lacked adjudicative jurisdiction over claims by a nonmember against a Montana corporation and a tribal member; dismissal of the corporation and shareholder was reversed. **Before you pierce, make sure you are in a court that can hear the case against the entity you have sued.**

**Walkovszky v. Carlton (N.Y. 1966)** — the fragmented taxi fleet: ten corporations, two cabs each, minimum insurance. Held: the complaint **failed** — it pleaded that the corporations were operated as a single enterprise, which at most makes the *other corporations* liable, but did not allege that Carlton was **conducting the business in his individual capacity**. Undercapitalization consistent with the statutory minimum is not by itself fraud. (Keating, dissenting: the whole structure exists to defeat recovery.)
> Devlin's instruction is the right one: **draw the chart with arrows.** The reason the claim fails is visible only once you see whether the plaintiff is reaching sideways (enterprise liability) or upward (individual liability).

**Howie v. Ikechukwuka (Mass. Super. 2003)** — forty years later, same industry, better facts: "Elsie's Cab, Inc." was painted like every other Boston Cab, answered the phone as "The Boston Cab Company," and handed out Boston Cab business cards, amid individual incorporations and "self-insured" status. The branding and integrated operation supply what *Walkovszky*'s complaint lacked.
> Note how this is *Gizzi* and *Drummond* reappearing: **outward manifestations of a single enterprise**, now used to reach assets rather than to establish authority.

**Sea-Land Services v. The Pepper Source (7th Cir. 1991)** — the *Van Dorn* two-part test. Unity of interest and ownership was clear: Marchese ran five corporations with **no formalities, no records, no meetings, no capitalization**, and used corporate accounts for personal expenses (mortgage, alimony, boat, car). But an unsatisfied judgment alone is not "fraud or injustice"; the court required something more — here, potential **unjust enrichment** — and remanded. Also introduces **reverse piercing** to reach the sibling corporations.

**Kinney Shoe v. Polan (4th Cir. 1991)** — West Virginia's test: (1) unity of interest; (2) inequitable result; and an optional **third prong** asking whether the creditor could have protected itself. Polan put no capital in, kept no records, and used a shell to hold a sublease. The court **pierced**, declining to apply the third prong.
> Devlin pushes back hard: Kinney could have required Polan's signature, a surety, or a credit check, and "is rewarded for his ignorance." Then he supplies the reconciliation: **in tort cases the plaintiff has no such opportunity, so capitalization should dominate and formalities should matter less.** Learn both the holding and the critique.

**Baatz v. Arrow Bar (S.D. 1990)** — the other outcome on similar-looking facts. The Neuroths personally guaranteed a $50,000 loan and the corporation was thinly capitalized, but the corporation observed its formalities and held itself out as a corporation; individual defendants dismissed. The dissent stresses undercapitalization and the president's admission that they incorporated "as a shield against individual liability."
> **Incorporating to limit liability is the *purpose* of incorporating — it is not evidence of abuse.** That sentence resolves a lot of student confusion.

**My Bread Baking Co. v. Cumberland Farms (Mass. 1968)** — THE MASSACHUSETTS ANCHOR. My Bread's delivery racks were withheld by store managers acting on Haseotes's instructions. Haseotes was an officer and stockholder of C.F. Inc., of each codefendant, and of fifteen other corporations; C.F. Inc. **owned no stock** in the codefendants. Liability for conversion nonetheless attached because of common control and the **confused intermingling** of activity among corporations in a common enterprise.
> **Sibling liability without ownership.** Ask Devlin's questions: would the result differ if a truck had run someone over? Would this reasoning make Haseotes personally liable?

**Gardemal v. Westin Hotel Co. (5th Cir. 1999)** — the outer limit. Shared trademark, shared operations manuals, and a shared reservation system describe "a typical, working relationship between a parent and subsidiary." No blending of identities, no evidence of harm from separateness → **no alter ego, no single business enterprise.**

**Philip Alan, Inc. v. Sarcia (Mass. Super. 2007)** — two lessons in one. (1) Veil piercing failed against Nosal Builders for want of any evidence of a corporate connection — the plaintiff must produce evidence sufficient to show a reasonable expectation of proving the elements. (2) The **promoter liability** point: an agent is personally bound where the entity that supposedly contracted — "MSarcia Construction Services, LLC" — **did not exist at contract formation.**
> That second holding is Restatement Chapter 6 again: **contracting on behalf of a nonexistent principal makes you the party.** Form the entity before you sign.

**Scott v. NG U.S. 1, Inc. (Mass. 2008)** — the modern Massachusetts synthesis. A parent that acquired a subsidiary decades after the contamination and sale of the site was **not** directly liable as an operator under c. 21E, and there were no grounds to pierce. The opinion collects the **twelve factors**: (1) common ownership; (2) pervasive control; (3) confused intermingling of business assets; (4) thin capitalization; (5) nonobservance of corporate formalities; (6) absence of corporate records; (7) no payment of dividends; (8) insolvency at the time of the transaction; (9) siphoning of funds by the dominant shareholder; (10) nonfunctioning officers and directors; (11) use of the corporation for the dominant shareholder's transactions; (12) use of the corporation to promote fraud.
> The governing sentence: **"control, even pervasive control, without more, is not a sufficient basis to ignore corporate formalities."** There must be "dubious manipulation and contrivance," an improper purpose, and a connection between the injury and the improper conduct.

**Nissen Corp. v. Miller (Md. 1991)** — SUCCESSOR LIABILITY, not piercing. An asset purchase expressly excluding liability for previously sold products; the seller continued for five years under a new name. Held: **no liability.** Maryland retains the four traditional exceptions (express or implied assumption; de facto merger; mere continuation; fraudulent transfer to escape liability) and **rejects the continuity-of-enterprise and product-line exceptions** as inconsistent with fault-based tort liability.
> Compare *Milliken* (Week 10): same doctrinal family, and the same question — **did the buyer buy the business, or just the assets?**

**Attorney General v. M.C.K., Inc. (Mass. 2000)** — a receivership case that supplies the phrase later courts use: piercing is reserved for the **"rare situation."** A receiver appointed under the Patient Protector Receivership Act sought to sell a nursing home abandoned by its owner; the case addresses the receiver's authority to sell versus close the facility and remands for reconsideration of the conflicting orders.

---

## WEEK 13 — CLOSELY HELD CORPORATIONS

### The framework
Devlin's setup is the best in the book. Your ten shares of Microsoft are a **passive investment**: you expect no management role, you bought low and hope to sell high. But when four college friends each take 25% of a new company, no one thinks of the others as fellow shareholders — **they think of them as partners.** All profits go to salaries; there are no dividends; there is no market for the shares.

That mismatch is the whole week: **corporate form, partnership expectations, and no exit.**

### Donahue v. Rodd Electrotype (Mass. 1975)
**Role:** THE DEFINITION AND THE STRICT STANDARD.

**Memorize the three elements of a close corporation:** (1) a small number of stockholders; (2) no ready market for the corporate stock; (3) substantial majority stockholder participation in the management, direction, and operations of the corporation.

Because such a corporation resembles a partnership, stockholders owe one another the **same fiduciary duty partners owe: "utmost good faith and loyalty" — a stricter standard than the good-faith-and-inherent-fairness duty owed in a public corporation.** The corporation purchased the controlling shareholder's shares; a minority holder was offered nothing.

**Holding — the equal opportunity rule:** if the corporation purchases shares from a controlling stockholder, it must offer **each** stockholder an equal opportunity to sell a ratable number of shares on identical terms.

> The freeze-out toolkit Devlin wants you to see: majority owners can pay themselves salaries and bonuses, deny dividends, deny employment, deny board seats, and refuse to buy minority shares — each move lawful in isolation, devastating in combination, and with **no market** the minority cannot simply sell and leave.

### Wilkes v. Springside Nursing Home (Mass. 1976)
**Role:** THE BALANCING TEST — decided barely a year after *Donahue*, and softer.

Four equal owners; Wilkes's salary was terminated and he was voted out as officer and director. The SJC recognized that the controlling group "must have some room to maneuver in establishing the business policy of the corporation," and adopted a two-step burden-shifting framework:

1. The controlling group must demonstrate a **legitimate business purpose** for its action.
2. The minority may then show that the same objective could have been achieved through an **alternative course of action less harmful** to the minority's interest.
3. The court weighs the legitimate purpose against the practicability of the less harmful alternative.

> Devlin's planning question: how could Wilkes have protected himself at the outset? **Employment agreement, buy-sell agreement with a real valuation formula, supermajority provisions, or a shareholders' agreement guaranteeing office and salary.** And note his hypothetical — a 5% employee-at-will shareholder whose stock is redeemable on termination — that is precisely the arrangement *Merola* validates.

### Merola v. Exergen Corp. (Mass. 1996)
**Role:** THE LIMIT ON *WILKES*.

A vice president and minority shareholder was terminated. There was **no legitimate business purpose** for the termination — but also **no financial gain to the majority**, no scheme to force a buyback at a depressed price, and no violation of public policy; the plaintiff had been paid $17 per share, the same price paid to other selling shareholders, and had realized a return on his capital independent of salary. Held: **no breach.**

> **Rule:** not every discharge of an at-will employee who happens to own stock in a close corporation is a breach of fiduciary duty. Ask **whether the majority captured value** from the freeze-out. *Wilkes* + *Merola* together give you both halves of the test.

### Sugarman v. Sugarman (1st Cir. 1986)
**Role:** THE FREEZE-OUT PATTERN, AND THE REMEDY.

Leonard, the majority shareholder, paid himself excessive compensation, denied the minority meaningful participation, and then offered to buy their shares at a low price. Held: **breach of fiduciary duty.**

> Devlin's follow-ups are the important part: what must Leonard prove going forward, and **how should he now set his own salary?** Answer: by reference to comparable market compensation, approved by disinterested decision-makers, documented. And note the honest question — **after the judgment, aren't the plaintiffs still frozen out?** Damages do not create a market; that is why buy-sell agreements exist.

### Keating v. Keating (Mass. Super. 2003)
**Role:** THE FACTS-INTENSIVE FAMILY WAR.

Father and daughter against son, a 49% stockholder who left and started a competing food-distribution business. The court had to decide whether the son quit or was fired, whether he was frozen out of his 49%, whether any buy-sell or stock restriction agreement governed, and whether either side breached fiduciary duties or committed unfair trade practices or intentional torts. Twenty-four witnesses, eighty-eight exhibits, "a number of very close legal calls."

> The takeaway is professional rather than doctrinal, and Devlin says so: **what would you, as corporate counsel, have done to prevent this?** A written stock restriction/buy-sell agreement with a valuation formula and a triggering-events clause would have resolved nearly every issue litigated for four weeks.

### Smith v. Atlantic Properties (Mass. App. Ct. 1981)
**Role:** THE MINORITY OWES THE DUTY TOO.

The articles and by-laws required an **80% affirmative vote** for any corporate action, giving each of four equal shareholders a veto. Wolfson used his veto to block dividends in order to force repairs and improvements, exposing the corporation to IRS penalty taxes for unreasonable accumulation of earnings. Held: **Wolfson breached his fiduciary duty** to the other shareholders; he bore the resulting penalties.

> **A veto provision converts a minority holder into a controlling shareholder** for the decisions it reaches — an *ad hoc* majority — and the *Donahue*/*Wilkes* duties attach.
> Devlin's needling question is fair: **were the other three any less blameworthy?** "Tyranny of the majority, or tyranny of the minority, it's still tyranny." And the planning answer: Wolfson should have documented a legitimate business purpose contemporaneously and offered a less harmful alternative — the same *Wilkes* structure, run from the other side.

---

## WEEK 14 — MERGERS, TAKEOVERS, AND DERIVATIVE SUITS

*Three distinct subjects sharing one week. Keep them in separate boxes.*

### Box A — Mergers and freeze-outs

Devlin's framing: corporations merge for synergy, tax, regulatory, and competitive reasons, and can do so stock-for-stock, stock-for-assets, or assets-for-assets. The mechanics are outside the course. **What matters is the effect on shareholders and how far courts will go to protect them.**

#### Coggins v. New England Patriots Football Club (Mass. 1986)
**Role:** THE BUSINESS PURPOSE TEST.

Sullivan borrowed heavily to buy the voting shares, then needed the **corporation** to service **his personal** debt. A corporation cannot simply assume an owner's debts — that is a plain breach. So he organized a new entity and merged the Patriots into it, cashing out the nonvoting shareholders.

Held: **breach of fiduciary duty.** In a freeze-out merger, the controlling group must establish that the merger served a **legitimate business purpose of the corporation** — not merely of the controlling shareholder — and, if so, that the transaction was fair. Financing a controlling shareholder's personal acquisition debt is not such a purpose.

> Devlin's planning question: how could Sullivan have succeeded? Structure the acquisition debt at an entity the shareholders had already approved, obtain informed disinterested approval, articulate and document an independent corporate purpose in advance. And note his caveat: **the business-purpose requirement has not been well received elsewhere** — Delaware abandoned it in *Weinberger* in favor of entire fairness plus appraisal.

### Box B — Takeovers

Devlin's setup: a takeover is a hostile merger — buy enough shares, elect your own board, remove the old one. The conflict is structural: **target management will lose their jobs if the bid succeeds, so their advice to shareholders is inherently compromised.**

#### Cheff v. Mathes (Del. 1964)
**Role:** DEFENSIVE MEASURES AND GREENMAIL.

Holland Furnace's directors used corporate funds to buy out an accumulating outside shareholder at a premium. Held: where directors are charged with using corporate funds to perpetuate themselves in office, they bear the burden of showing **reasonable grounds to believe a danger to corporate policy and effectiveness existed** — satisfied by showing **good faith and reasonable investigation**. On these facts, the board's concern about the raider's liquidation-oriented plans and its effect on the sales organization sufficed.

> This is the ancestor of *Unocal*'s proportionality review. **Whether "greenmail" is good or bad depends on whether you are the remaining shareholder or the departing one** — Devlin's point exactly.

### Box C — Shareholder derivative suits

The problem Devlin states plainly: if an outsider wrongs the corporation, the board will sue. **But will the board authorize a suit against one of its own members?** Every doctrine in this box is an attempt to balance (1) director autonomy, (2) genuine remedies for insider wrongdoing, and (3) protection against nuisance strike suits. Read **M.R.C.P. 23.1**.

**Direct vs. derivative** — the threshold question:
- **Direct:** the shareholder is injured personally and distinctly (e.g., denial of voting rights, a contractual right).
- **Derivative:** the *corporation* is injured; the shareholder is harmed only through the decline in share value; recovery goes to the corporation.

#### Cohen v. Beneficial Industrial Loan Corp. (U.S. 1949)
**Role:** THE PROCEDURAL GATE.

Held: a federal court sitting in diversity **must apply** a forum state's statute requiring an unsuccessful derivative plaintiff to pay defense expenses and to post security as a condition of suit — the statute creates a liability, not a mere procedural rule. (The case is also the source of the collateral order doctrine.)

> Note what the security-for-expenses device actually does: it is a legislative response to the strike suit Devlin describes — buy one share, allege wrongdoing, collect fees to go away.

#### Heineman v. Datapoint Corp. (Del. 1993)
**Role:** DEMAND FUTILITY PLEADING.

The Chancery Court dismissed for failure to plead with particularity facts excusing demand. The Supreme Court **reversed** and remanded with leave to amend again. The *Aronson* framework: demand is excused if the particularized allegations create a **reasonable doubt** that (a) the directors were disinterested and independent, or (b) the challenged transaction was the product of a valid exercise of business judgment.

> Devlin's needle: **what do you think the board says when a demand is made? Isn't that the end of the suit?** That is exactly why demand futility is fought so hard — making demand generally concedes the board's independence.

#### Alford v. Shaw (N.C. 1987)
**Role:** SPECIAL LITIGATION COMMITTEES — the skeptical view.

On rehearing, the court **reversed its own prior holding** that the business judgment rule required deference to an independent special litigation committee. Held: the SLC's decision to terminate is **not binding on the courts**; the court must undertake its own review of the settlement or termination to determine whether it is in the corporation's best interest. North Carolina's statutory scheme was read as broader than *Zapata* and to apply in both demand-excused and demand-required cases.

> Devlin's questions are the right ones: **how independent is a committee appointed by the very board being sued?** Note the mechanism in this case — two outsiders were elected to the board *and then* designated as the investigating committee.

#### Cuker v. Mikalauskas (Pa. 1997)
**Role:** THE THIRD APPROACH — adopt a code.

Held: the business judgment rule **does** permit a Pennsylvania board to terminate derivative litigation, and the court expressly **adopted the ALI Principles of Corporate Governance §§ 7.02–7.10** as the procedural framework — reasoning that the ALI scholarship is reliable and consistent with Pennsylvania precedent, that New York supplies no procedures, and that Delaware's demand-excused review lets courts substitute their own business judgment.

> Line these three up as a **spectrum of judicial intrusiveness**: *Cuker* (deference within a defined procedure) → *Zapata*/Delaware (two-step, with independent business judgment in demand-excused cases) → *Alford* (mandatory independent judicial review). *Boylan* and the *Houle* test give you the Massachusetts position.

#### Food & Allied Service Trades Dept., AFL-CIO v. Wal-Mart (Del. Ch. 1992)
**Role:** BOOKS AND RECORDS — DGCL § 220.

A union that owned 23 shares sought the stockholder list to solicit proxies concerning allegations about Chinese forced labor in the supply chain. Held: **proper purpose.** Soliciting proxies to be voted at the annual meeting is a classic proper purpose, and a purpose directed toward ensuring the corporation complies with its legal obligations is consistent with management's own conception of corporate interest, even if the ultimate aim is not share-value enhancement.

> § 220 is the cheap, powerful tool that precedes a derivative suit — the "tools at hand" doctrine that later Delaware cases urge plaintiffs to use before pleading demand futility. Practically, it is how a plaintiff obtains the particularized facts *Heineman* and *Brehm* demand.

#### In re Paxson Communications Corp. Shareholders Litigation (Del. Ch. 2001)
**Role:** DIRECT vs. DERIVATIVE, APPLIED.

Shareholders alleged the board summarily rejected an all-cash $20/share offer from Fox and instead accepted a package of NBC transactions. Held: claims that directors failed to evaluate and respond to an acquisition proposal are **derivative** — the injury is common to all shareholders and not a distinct individual harm. The plaintiffs' own concession that the Class B stock was economically identical to Class A defeated the dilution-based direct claim.

> **Test:** who suffered the harm, and who would receive the recovery? If the answer to both is "the corporation," it is derivative — and Rule 23.1's demand requirement applies.

#### Brehm v. Eisner (Del. 2000)
**Role:** THE MODERN CAPSTONE — the Ovitz severance.

Disney hired Michael Ovitz and, fourteen months later, paid a severance package worth roughly $140 million. Shareholders alleged waste and breach of the duty of care in approving the employment agreement and the non-fault termination.

Holdings to carry:
- Review of a Rule 23.1 dismissal is **de novo**; the court gives no deference on the legal test.
- **§ 141(e) reliance:** directors are fully protected in relying in good faith on experts selected with reasonable care — the question is not whether the advice was *right* but whether the process of relying on it was informed.
- The duty of care in the decision-making context is measured by **gross negligence** as to the process, not by the substantive wisdom of the outcome.
- **Waste** requires an exchange so one-sided that no business person of ordinary judgment could conclude the corporation received adequate consideration.
- The complaint failed for lack of particularized facts, but plaintiffs were given leave to replead. (The later *Disney* litigation, tried on the merits, ultimately exonerated the directors.)

> Devlin's recurring theme lands here: **process, not outcome.** A board can approve a spectacularly bad deal and be protected if it informed itself; a board can approve a fine deal and be exposed if it was interested or grossly uninformed.

---

# PART VI — SECURITIES LAW AND INSIDER TRADING (WEEK 15)

## The framework

Devlin's hypothetical — the mid-level manager who sees the confidential Five Year Plan and buys options — is the whole doctrinal problem in one scenario. Two questions run the entire week:

1. **Is the information material and nonpublic?**
2. **Did the trader breach a duty — and to whom?**

**The three theories, in historical order:**

| Theory | Duty runs to | Anchor case |
|---|---|---|
| **Classical** | The corporation's shareholders (insiders and temporary insiders) | *Texas Gulf Sulphur* |
| **Tipper/tippee** | Derived from the insider's breach; requires a **personal benefit** to the tipper | *Dirks*; *Spivak* |
| **Misappropriation** | The **source** of the information, not the trading counterparty | *O'Hagan*; *McGee* |

Plus **Rule 14e-3(a)**, which in the tender-offer context prohibits trading on undisclosed information **without requiring any breach of duty at all**, and **Rule 10b5-2**, which enumerates relationships of trust and confidence for misappropriation purposes.

### Goodwin v. Agassiz (Mass. 1933)
**Role:** THE BASELINE THAT WAS DISPLACED.

A director and the general manager bought shares on the Boston exchange from a selling shareholder while holding a geologist's unpublished theory about possible copper deposits. Held: **no liability.** Directors owe their fiduciary duty **to the corporation**, not to individual shareholders trading impersonally on an exchange; there were no "special facts" — no direct dealing, no concealment aimed at the plaintiff, and the theory was speculative.

> Devlin's framing is the useful one: this is the **caveat emptor era**, when the duty of loyalty was narrowly circumscribed. **Note carefully to whom the court says the duty runs.** Everything in the modern law is a response to that answer.

### SEC v. Texas Gulf Sulphur (2d Cir. 1968)
**Role:** THE MODERN FOUNDATION — disclose or abstain.

TGS employees and tippees bought stock and calls after an extraordinarily promising drill core at Timmins, while the company issued a discouraging press release. Holdings:

- **Anyone in possession of material inside information must either disclose it to the investing public or abstain from trading.** The rule is not limited to formal insiders.
- **Materiality:** a fact is material if a reasonable investor would attach importance to it in deciding whether to trade. For contingent events, materiality depends on a balancing of the **indicated probability that the event will occur and the anticipated magnitude** of the event in light of the totality of company activity.
- **Timing:** information is not "public" the instant it is released; insiders must wait for it to be effectively disseminated and absorbed.
- A corporation may be liable under Rule 10b-5 for a **materially misleading press release**, judged by whether it was misleading to reasonable investors.

> Devlin's policy argument is worth reproducing on an exam: capital markets depend on the belief that the game is not rigged. Picture the retiree with $50,000 in life savings and ask whether she should invest in a market where insiders trade freely. *"Can you spell G-r-e-a-t D-e-p-r-e-s-s-i-o-n?"*

### Carpenter v. United States (U.S. 1987)
**Role:** THE PROPERTY THEORY — and the deadlock.

Winans, co-author of the Wall Street Journal's "Heard on the Street" column, secretly traded ahead of his own columns with confederates. The column contained **no corporate inside information** — its value came from its market impact. Held: the **Journal's confidential business information is property**, and Winans's scheme to misappropriate it for trading defrauded the Journal of that property; **mail and wire fraud convictions affirmed.** On the § 10(b) counts, the Court split **4–4**, leaving the misappropriation theory unresolved for another decade.

> Two exam points: (1) confidential information can be property even when it isn't corporate inside information; (2) securities fraud and mail/wire fraud are **independent** charges resting on the same facts. Devlin's aside — *can you really trust your fellow conspirators?* — is a nod to how these cases get proved.

### United States v. Chestman (2d Cir. 1991) (en banc)
**Role:** THE LIMITS OF "RELATIONSHIP OF TRUST AND CONFIDENCE."

The Waldbaum sale was disclosed within the family; Keith Loeb learned of it from his wife and told his broker, Chestman, who traded. Held:

- **Rule 10b-5 misappropriation requires a fiduciary relationship or its functional equivalent.** Marriage and kinship alone do **not** create one; nor does a history of confidential disclosures without more. The elements are discretionary authority and dependency, or an express or implied undertaking to maintain confidence. Chestman's 10b-5 conviction was **reversed**.
- **Rule 14e-3(a) is a valid exercise of SEC rulemaking under § 14(e)**, and it imposes a disclose-or-abstain duty in the tender-offer setting **without any breach of fiduciary duty**. Chestman's 14e-3 conviction was **affirmed**.

> Devlin's framing is exactly right: Chestman owes a fiduciary duty to nobody, so under a pure 10b-5 analysis he walks. **So which rule did he violate?** 14e-3. That is the point of assigning the case.
> *Chestman*'s family-relationship gap is the direct cause of **Rule 10b5-2**, which now specifies that a duty of trust or confidence exists (i) on agreement to maintain confidence, (ii) from a history or pattern of sharing confidences, or (iii) between spouses, parents, children, and siblings, subject to a rebuttal.

### United States v. O'Hagan (U.S. 1997)
**Role:** THE SYNTHESIS.

A partner at the firm representing Grand Met traded Pillsbury options ahead of the tender offer, without ever representing or dealing with Pillsbury. Two holdings:

1. **The misappropriation theory is valid under § 10(b).** A person who trades on confidential information **misappropriated in breach of a duty owed to the source** of the information commits deception "in connection with the purchase or sale of a security." The fraud is on the source, not on the trading counterparty; the deception is consummated when the trade occurs, because full disclosure to the source would defeat the scheme.
2. **Rule 14e-3(a) is within the SEC's § 14(e) rulemaking authority**, even though it dispenses with a breach-of-duty requirement, as a prophylactic measure.

> **Classical vs. misappropriation in one line:** the classical theory reaches insiders who owe a duty to the people they trade with; the misappropriation theory reaches outsiders who owe a duty to the people they took the information from. Together they close the loop that *Chestman* and *Carpenter* left open.
> Practical corollary worth remembering: **disclosure to the source defeats liability under the misappropriation theory** (though it may create other problems — an attorney who tells his client he plans to trade has not solved his ethics problem).

### SEC v. McGee (E.D. Pa. 2012)
**Role:** RULE 10b5-2 IN ACTION.

McGee learned of a pending acquisition from a fellow **Alcoholics Anonymous member** — a person he had sponsored and with whom he shared confidences over years — and traded, tipping others. Defendants argued the complaint failed to allege a relationship of trust and confidence and that the SEC exceeded its rulemaking authority in defining that relationship in **Rule 10b5-2**.

Held: motions to dismiss **denied** as to McGee and Michael Zirinsky — the complaint adequately alleged a **history and pattern of sharing confidences** giving rise to a duty, and the relief defendants were adequately alleged to have been unjustly enriched. Robert Zirinsky's motion was **granted** for insufficient allegations of **scienter**.

> Two structural points: (1) **the relationship need not be commercial or familial** — the test is the actual expectation of confidentiality; (2) **relief defendants** (people who received the profits without a legitimate claim to them) can be reached for disgorgement even without primary liability.

### SEC v. Spivak (D. Mass. 2016)
**Role:** THE PERSONAL BENEFIT ELEMENT.

A bank analyst tipped her **romantic partner**, a day trader, about a confidential pending acquisition of a bank client; he traded in his own accounts and his deceased mother's, netting about $222,357. Spivak argued, relying on the Second Circuit's *Newman*, that absent an **objective, pecuniary** benefit to the tipper there was no breach, and therefore no derivative tippee liability.

Held: **motion denied.** Under *Dirks* and First Circuit precedent (*Rocklage*, *Sargent*), the benefit need not be specific or tangible — **a gift of confidential information to a trading friend or relative is itself a sufficient personal benefit**, and the complaint alleged exactly that: a gift conferred upon a romantic partner. *Newman*'s narrower formulation does not control. (The Supreme Court resolved the split the same term in *Salman v. United States*, agreeing with the gift theory.)

> **The tippee chain, memorized:** (1) the tipper breached a duty by disclosing; (2) the tipper received a **personal benefit** (including the benefit of making a gift); (3) the tippee **knew or should have known** of the breach. Break any link and tippee liability fails.

---

# THE WHOLE COURSE ON ONE PAGE

## Anchor case per doctrine

This table is an **index into the material above, not a statement of the operative rules.** Each line is a memory hook for finding the right week, and several deliberately compress a case's doctrine into a phrase. Two entries in particular state historical rules the Restatement (Third) rejects — they are marked ⚠ and unpacked in *Old rule vs. modern rule*.

| Doctrine | Anchor | Why |
|---|---|---|
| Agency / subagency | **Demian** | Who is whose agent? |
| Duty when delegating | **Tormo** | Delegation doesn't erase the original agent's duties |
| Authorized delegation | **Bucholtz** | Consent + reasonable selection |
| Undisclosed principal | **Rowen** | Actual authority where apparent authority logically can't work |
| Employee classification | **Cowan / Wright** | Control; labels don't decide |
| Scope of employment | **Miguel** | Employee ≠ liability for every act |
| Statutory classification | **Ruggiero** | The ABC test is a separate inquiry |
| Statutory immunity | **Fortenbacher / Dudley** | Policy planning vs. operational implementation |
| Full authority sequence | **Wing** | Actual → implied → apparent → ratification |
| Apparent authority by conduct | **Elliott** | Organizational manifestations |
| Apparent authority by branding | **Gizzi** | Public manifestations |
| Franchise: actual + apparent | **Drummond** | Internal control vs. external holding out |
| Estoppel / direct negligence | **Hoddeson** | Apparent authority fails; estoppel may remain |
| Act-specific authority | **Barrow** | Agency is not a blank check |
| Equal dignities | **Commission v. Roger Gray** | Authority may itself need written form |
| Agent's personal liability | **Flynn** | Signature and capacity |
| Ratification | **3A's Towing** | Knowing acquiescence, informed choice |
| Apparent authority vs. ratification | **Linkage** | Same facts, two different times |
| Termination of authority | **Restatement §§ 3.06–3.11 itself** | The Week 4 cases don't teach it |
| Employment at will | **Thomas / Shenn** | Definite term vs. at-will |
| Modification of at-will | **Pine River** | Handbooks as promises |
| Bad-faith discharge | **Monge / Maddaloni** | Exception and remedy |
| Limits of bad faith | **Siles / Brockmeyer** | Bad decision ≠ bad faith |
| Notification | **Farr** | Notice to an authorized recipient is notice to P |
| Imputation | **Black Elk** | Best modern § 5.03 statement |
| Adverse interest | **Southern Farm / Black Elk** | True adversity vs. mere wrongdoing |
| Capacity of knowledge | **Sutton** | Which hat was he wearing? |
| Notice through a chain | **Color Tile** | Map every link |
| Authority to receive notice | **Georgia-Pacific** | Not every agent receives every notice |
| Competition while agent | **Maryland Metals** | The § 8.04 anchor |
| Crossing the line | **BBF** | Opportunity and disloyalty |
| Confidential info after departure | **First American** | Competing ≠ competing unfairly |
| Post-employment restraint | **Arthur Murray / DeVoe** | Protectable interest + reasonableness |
| Modern noncompete | **NuVasive / DraftKings** | § 24L + choice of law |
| Retaining vs. charging lien | **Heinsheimer** | Possession vs. fund produced |
| Statutory attorney's lien | **Gormley / Ropes & Gray** | "In the client's favor"; reaches patents and proceeds |
| Possessory lien priority | **Gangloff / Commerce Acceptance** | Possession beats the perfected secured party |
| Doctrine of election ⚠ | **Williams** | Judgment against A forecloses P — **historical; contra Rest. § 6.09** |
| Partnership vs. creditor | **Kaufman-Brown / Martin v. Peyton** | Control as security ≠ co-ownership |
| Partnership vs. employee | **Fenwick / Vohland** | Who's asking; net profits and risk |
| Unequal partners | **Frank v. Pickens** | Structure is up to the parties; book value bites |
| Franchise control | **Humble Oil / Hoover** | Details vs. results |
| Partnership by estoppel | **Amory** | Disclose the principal, sign in capacity |
| Term expiring into at-will | **Tropeano** | Renew the term or lose the protection |
| Partner loyalty (strict) | **Meinhard** | Punctilio; opportunity from the office |
| Departing partners (modern) | **Meehan / Gibbs** | Prepare yes; unfair advantage no |
| Partner management/deadlock | **Nabisco** | A majority of one is no majority |
| Partner vicarious liability | **Roach v. Mead** | Scope of the firm's business |
| Rightful dissolution | **Johnson v. Kennedy** | At-will; unseemly ≠ wrongful; no going-concern value |
| Liquidation remedy | **Dreifuerst** | You can force an actual sale |
| Buying at the dissolution sale | **Prentiss / Monin** | Bidding is fine; diverting the asset is not |
| Incoming/outgoing partner liability | **8182 Maryland** | § 17; timeline of admission, withdrawal, breach |
| GP self-dealing | **Bassan** | Consent must follow the agreement's own terms |
| LLC statute controls | **Puleo** | No corporate analogies |
| Manager duties | **Harbison / Knapp** | The operating agreement is the source |
| Contracting around fiduciary duty | **Fronk** | Meinhard is a default rule |
| Successor liability | **Milliken / Nissen** | De facto merger; four traditional exceptions |
| LLP restrictive provisions | **Pierce v. Morrison Mahoney** | Neutral provisions survive Rule 5.6 |
| Judicial dissolution | **Rapoza** | c. 156C § 44 deadlock |
| Corporate power | **A.P. Smith** | Intra vires / ultra vires |
| BJR + loyalty overlay | **Bayer v. Beran** | Self-interest defeats deference |
| BJR (strong form) | **Shlensky** | Fraud, illegality, or conflict — or nothing |
| Officer authority ⚠ | **Menard** | "Inherent authority" — **Rest. 2d vocabulary**; run it through §§ 2.03 / 2.05 |
| Corporate opportunity | **Burg v. Horn** | Line of business isn't mechanical |
| Self-dealing + demand | **Boylan** | Houle; disinterested ratification |
| Piercing (NY) | **Walkovszky** | Sideways vs. upward liability |
| Piercing (federal two-step) | **Sea-Land / Kinney** | Unity + fraud or injustice |
| Piercing (Massachusetts) | **My Bread / Scott v. NG U.S. 1** | Confused intermingling; twelve factors |
| Refusal to pierce | **Baatz / Gardemal** | Formalities respected; normal parent-sub |
| Promoter liability | **Philip Alan** | Form the entity before you sign |
| Close corporation definition + strict duty | **Donahue** | Three elements; equal opportunity |
| Balancing | **Wilkes** | Legitimate purpose; less harmful alternative |
| Limit | **Merola** | No gain to the majority, no breach |
| Freeze-out remedy | **Sugarman** | Excess salary + low-ball offer |
| Minority as controller | **Smith v. Atlantic Properties** | The veto creates the duty |
| Freeze-out merger | **Coggins** | Business purpose of the corporation |
| Defensive measures | **Cheff** | Good faith + reasonable investigation |
| Derivative gatekeeping | **Cohen / Heineman** | Security for expenses; demand futility |
| Litigation committees | **Alford / Cuker / Boylan** | Spectrum of judicial intrusiveness |
| Books and records | **Food & Allied v. Wal-Mart** | Proper purpose under § 220 |
| Direct vs. derivative | **In re Paxson** | Who was injured; who recovers |
| Modern care/waste pleading | **Brehm v. Eisner** | Process, § 141(e) reliance, waste |
| Classical insider trading | **Texas Gulf Sulphur** | Disclose or abstain; probability × magnitude |
| Property theory | **Carpenter** | Confidential business information as property |
| Duty gap + 14e-3 | **Chestman** | Family ≠ fiduciary; 14e-3 needs no duty |
| Misappropriation | **O'Hagan** | Duty to the **source** |
| 10b5-2 relationships | **McGee** | History and pattern of confidences |
| Tippee liability | **Spivak** | A gift is a personal benefit |

## Where the casebook and the Restatement (Third) diverge

Many of the assigned opinions predate the Third Restatement, and several reason from the Second or from doctrines the ALI has since abandoned. Forcing them into the modern framework loses the most educational thing about them: **what the Third Restatement changed, and why.** Keep the two layers visibly separate.

> **CASE DOCTRINE:** what vocabulary and rule did *this court* use?
> **MODERN HOME:** how would the Restatement (Third) analyze the same facts?
> **STATUS:** current · historical · superseded vocabulary · jurisdiction-specific · open conflict.

| Case / doctrine | What the case does | Modern home | Status |
|---|---|---|---|
| **Williams v. Investors Syndicate** | Election — judgment against the agent bars a later claim against the undisclosed principal | § 6.09: judgment against one discharges neither; only satisfaction discharges, and only to that extent | ⚠ **OPEN CONFLICT.** Massachusetts precedent vs. the ALI's rejection of election. Say which source governs. |
| **Menard v. Dage-MTI** | "Inherent authority" of a corporate president | §§ 2.03 / 3.03 apparent authority; § 2.05 estoppel; § 2.06 for undisclosed principals | ⚠ **SUPERSEDED VOCABULARY**, comparable outcome |
| **Rowen & Blair** | "General agent" vs. "special agent" | §§ 2.01–2.02 actual authority and its scope; §§ 6.03, 6.05 for the undisclosed principal | **ABANDONED TERMINOLOGY** |
| **Miguel v. Linden** | "Frolic and detour" | § 7.07(2): an independent course of conduct not intended to serve any employer purpose | **REFRAMED FUNCTIONALLY**, most outcomes unchanged |
| **Hoddeson v. Koos Bros.** | Blends ostensible agency, estoppel, and proprietor negligence | Three separate rules: § 2.03 apparent authority · § 2.05 estoppel · § 7.05 the principal's own negligence | **SPLIT INTO SEPARATE SECTIONS** |
| **Cowan / Wright** | "Master and servant" | § 7.07(3): employer/employee, defined by control over the **manner and means** of the work | **RENAMED**, substance intact |
| **Wing** on ratification | Reasons from retained benefit | §§ 4.01, 4.06: informed assent with knowledge of material facts | **CONSISTENT**, stated more precisely |
| Any opinion citing **Rest. (Second)** | Second Restatement section numbers | The Third supersedes the Second and renumbers completely | **CHECK BEFORE CITING** |

### Jurisdictional splits — do not flatten these either

| Question | Split |
|---|---|
| Bad-faith discharge of an at-will employee | Massachusetts recognizes a good-faith limit (*Monge*, *Maddaloni*); Wisconsin refuses an amorphous good-faith requirement and takes a narrow public-policy exception (*Brockmeyer*) |
| Freeze-out merger | Massachusetts requires a legitimate **business purpose** (*Coggins*); Delaware abandoned that requirement in favor of entire fairness plus appraisal |
| Termination of derivative litigation | *Alford* (mandatory independent judicial review) · Delaware/*Zapata* (two-step, court's own business judgment where demand is excused) · *Cuker* (ALI Principles as the framework) · Massachusetts (*Houle* three-tier test, applied in *Boylan*) |
| Successor liability | Massachusetts applies de facto merger and mere continuation (*Milliken*); Maryland keeps the four traditional exceptions and rejects continuity-of-enterprise and product-line theories (*Nissen*) |
| Noncompete enforceability | Massachusetts permits within G.L. c. 149 § 24L's limits; California generally prohibits (*DraftKings*) |
| Tipper's personal benefit | First Circuit and *Salman*: a gift to a friend or relative suffices (*Spivak*); Second Circuit's *Newman* had demanded something pecuniary |

---

## Decision trees to memorize

**1. Can A's act be attributed to P?**
Actual (express → implied) → apparent → estoppel → ratification → independent direct liability of P.

**2. Is P vicariously liable for a tort?**
Agent? → employee? → scope of employment? → statutory redefinition or immunity?

**3. Is this a partnership?**
Two or more persons → carrying on a business → for profit → **as co-owners** (control, net profits, risk of loss, capital, conduct toward third parties, rights on dissolution) → and: *who is asking, and for what statutory purpose?*

**4. Should the veil be pierced?**
Unity of interest and ownership (formalities, records, commingling, capitalization, siphoning, nonfunctioning officers) → **plus** fraud, injustice, or confused intermingling → **plus** a connection between that conduct and the plaintiff's injury → contract or tort? (adjust the weight of capitalization vs. formalities accordingly).

**5. Is a director protected?**
Was there a decision? → informed process (gross negligence standard, § 141(e) reliance) → disinterested and independent? → good faith → if interested: entire fairness, burden on the fiduciary → close corporation? apply *Donahue/Wilkes/Merola* instead.

**6. Can a derivative suit proceed?**
Direct or derivative? → demand made or excused (particularized facts creating reasonable doubt) → special litigation committee response → the jurisdiction's review standard (*Zapata* / *Alford* / *Cuker* / *Houle*).

**7. Is this insider trading?**
Material? (probability × magnitude) → nonpublic? (effectively disseminated and absorbed) → duty: classical (to shareholders), misappropriation (to the source), or tender offer (14e-3, no duty needed) → if a tip: breach + personal benefit + tippee knowledge → scienter.

---

# HOW TO BRIEF EVERY CASE FROM HERE

Replace the generic "Rule" heading with a header that forces each case into the architecture. Example:

| Field | *Drummond v. Hilton* |
|---|---|
| **Doctrinal location** | Rest. 3d §§ 1.02, 2.03; Ch. 7 |
| **Relationship** | Hilton → Creative → hotel guest |
| **Question being tested** | Can Hilton escape liability by franchising and disclaiming agency? |
| **Doctrine plaintiff needs** | Actual agency/control **or** apparent agency |
| **Fact that activates it** | Inspection rights + operating standards + pervasive branding |
| **Fact defendant wants emphasized** | Separate ownership + express no-agency clause |
| **Boundary being tested** | Quality control vs. operational control; branding vs. reasonable belief |
| **Doctrinal contribution** | The disclaimer doesn't end the inquiry; both theories reach a jury |
| **Procedural posture / threshold** | Reversal of summary judgment — the holding is that a **jury could** find agency, not that Hilton is liable |
| **Burden / presumption** | Plaintiff bears it; the no-agency clause is evidence, not a presumption |
| **Remedy / consequence** | Remand for trial. No damages determined. |
| **Source status** | Current; consistent with §§ 1.02, 2.03, 7.08 |
| **Exam trigger** | Franchise, dealership, branded location, chain, platform |
| **One-line takeaway** | Attribution depends on the actual relationship and the manifestations, not the label |

For entity cases, swap the first three fields:

| Field | *Wilkes v. Springside* |
|---|---|
| **Statutory/doctrinal location** | Close corporation fiduciary duty; c. 156D background |
| **Structure** | 4 equal shareholders; salary + office = the entire return on investment |
| **Question being tested** | May the majority terminate a shareholder-employee's salary and office? |
| **Test produced** | Legitimate business purpose → less harmful alternative → balance |
| **Procedural posture / threshold** | Appeal after a master's report; liability established on the merits |
| **Burden / presumption** | Controlling group must show the legitimate purpose **first**; the burden then shifts to the minority on the less harmful alternative |
| **Remedy / consequence** | Damages measured by the salary Wilkes would have received |
| **Source status** | Current Massachusetts law, narrowed by *Merola* |
| **Planning failure that caused the case** | No employment or buy-sell agreement |

## Posture, burden, and remedy

Four questions worth asking of every case in the book, because the answers change what the holding actually stands for.

**1. What was the decision threshold?** Motion to dismiss, summary judgment, directed verdict, appeal on the merits, certified question. *Gizzi*, *Drummond*, and *Howie* all produce jury questions, not liability. *Walkovszky*, *Shlensky*, *Heineman*, and *Brehm* are pleading decisions — they hold that a **complaint** failed, which is a claim about particularity, not about whether the defendants behaved well.

**2. Who bears the burden, and does it shift?** This decides more exam questions than the nominal rule.

| Situation | Burden |
|---|---|
| Self-dealing by a fiduciary shown | Shifts to the fiduciary to prove fairness (*Starr v. Fordham*, applied in *Fronk*) |
| Freeze-out in a close corporation | Controlling group shows legitimate purpose, then minority shows a less harmful alternative (*Wilkes*) |
| Departing partners took clients | Once unfair solicitation is shown, departing partners must prove the clients would have followed anyway (*Meehan*) |
| Defensive share repurchase | Directors must show reasonable grounds — good faith plus reasonable investigation (*Cheff*) |
| Freeze-out merger | Controlling group must establish a legitimate business purpose of the corporation (*Coggins*) |
| Statutory independent contractor | Employer must prove **all three** ABC prongs (*Ruggiero*, § 148B) |
| Demand futility | Plaintiff must plead particularized facts creating reasonable doubt (*Heineman*, *Brehm*) |

**3. What remedy actually follows?** Disgorgement and constructive trust for disloyalty; expectation damages for breach of contract; rescission or damages for a defective merger; injunctive relief for a noncompete; forced sale on partnership liquidation (*Dreifuerst*); commissions for past services only (*Maddaloni*). A right without an available remedy is a different answer.

**4. What is the rule's source status?** Current, historical, jurisdiction-specific, or in conflict with a Restatement — see *Old rule vs. modern rule*.

---

# SIX META-RULES FOR THE WHOLE COURSE

1. **Classification determines which question you get to ask next.** Every unit runs the same move — agent/employee, creditor/partner, employee/partner, shareholder/close-corporation shareholder, insider/outsider.
2. **Labels never control; conduct and structure do.** *Wright*, *Drummond*, *Vohland*, *Fenwick*, *Martin*, *Gangloff*, *Baatz*.
3. **Authority, duty, and knowledge are all scope-limited.** An agent authorized to transact is not necessarily authorized to receive notice, sign an arbitration agreement, execute a lease, or delegate.
4. **Default rules exist because someone didn't draft — but first ask whether the rule can be drafted around at all.** Classify every rule as default, waivable only on informed consent (Rest. § 8.06), or mandatory. *Fronk* shows a limited partnership agreement validly displacing what *Meinhard* would otherwise require; *Pierce v. Morrison Mahoney* shows Rule 5.6 refusing to yield to a partnership agreement at all. Devlin asks after nearly every case, *what would you have advised your client to do?* — answer it every time, and say whether drafting could actually have solved it.
5. **Process beats outcome for fiduciaries; substance beats form for classification.** Directors are protected for informed processes even with bad results. Parties are bound by what they actually created, regardless of what they called it.
6. **Keep three layers separate: the rule, the case, and the exam mechanics.** The rule is the black-letter decision tree. The case is an example, a contrast, a boundary, or a historical artifact — sometimes all four. The exam mechanics are burden, posture, remedy, the best counterargument, and the one fact that flips the result. Collapsing the three into "section → case → takeaway" is faster to memorize and worse to think with.

And Devlin's own instruction, which is the best study habit in the syllabus:

> **WAS THE CASE CORRECTLY DECIDED?**