A Doctrine-First Reconstruction of the Entire Casebook

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:

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.

The master agency map

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?

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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from judgment for defendants after a bench trial in the S.D.N.Y.

Facts: Demian, a Pennsylvania importer of leather garments, engaged Charles A. Frank Associates — a service organization with Far East contacts — to locate manufacturers and arrange importation, for a commission. Frank arranged with K.C. Sun of Da Chong Hong Trading in Korea that, for 50% of Frank's commission, Sun would find manufacturers and, following Frank's instructions, do whatever else was needed. Demian ordered two styles from Korean maker Koreanna Moulson and sent letters of credit payable on presentation of Sun's certificate that the goods had been inspected and were merchantable. The jackets were defective.

Arguments: Demian: Frank arranged the transaction and promised inspection; Sun performed Frank's function, so Frank answers for the failure. Frank: Sun dealt with Demian directly and took its own share; Demian's letters of credit ran to Korea.

Holding: Whether Frank is responsible turns on whether Sun was Frank's subagent — employed to perform duties Frank owed Demian — or an agent answerable directly to Demian. Separately, if Frank personally promised the goods would be inspected, Frank is liable for his own breach regardless of subagency.

Disposition: Judgment dismissing the complaint vacated and remanded for further findings; dismissal of Frank's counterclaim for commissions affirmed.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: Motion for summary judgment by third-party defendant Devlin.

Facts: New York attorney Edward Devlin, acting without a fee, referred his clients' personal injury case to New Jersey attorney Milton Yormark — who was under criminal indictment. Yormark converted the $148,997 settlement draft. The clients sued the banks, which impleaded Devlin.

Arguments: Banks: Devlin negligently placed the clients' affairs in a criminal's hands. Devlin: No fee, no formal retainer, and referrals to local counsel are routine.

Holding: An attorney-client relationship existed despite the absence of a retainer or payment, because Devlin undertook to provide services. An agent authorized to employ others to conduct the principal's affairs owes a duty to exercise reasonable care in selecting them.

Disposition: Summary judgment granted in part — as to the portion of the claim resting on facts unknown at the time of referral — and denied in all other respects, leaving the negligent-selection theory alive.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a small claims judgment for the traveler.

Facts: The travel agency booked a package tour through a wholesaler; the reservations failed.

Arguments: Agency: The wholesaler alone is liable for its own default. Bucholtz: I hired the agency and never agreed to a wholesaler.

Holding: Absent proof of an independent relationship between retail agent and wholesaler, the travel agent is the customer's agent. If the agent used a wholesaler with the customer's express or implied consent and exercised reasonable diligence in selecting it, the agent is not liable for the wholesaler's default; without consent, the agent is liable. Knowledge of the industry practice is not so pervasive as to compel a finding of implied consent.

Disposition: Judgment for the traveler affirmed.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a bench-trial refusal to impose a mechanic's lien.

Facts: Flushing bought a building and leased it to Dutch Treat Bakers, agreeing to fund roughly $45,000 in improvements. Dutch Treat contracted with Rowen & Blair for electrical work exceeding that authority. The contractor did not know Flushing's role.

Arguments: Rowen & Blair: We improved the building and reasonably expected the owner to stand behind the work. Flushing: Dutch Treat's authority was capped; a contractor who never knew of me cannot have relied on anything I did.

Holding: Dutch Treat was a special agent for an undisclosed principal, and its authority to contract was limited to the amount granted. A third party cannot bind the principal beyond the authority actually conferred where nothing traceable to the principal supported a broader belief.

Disposition: Affirmed — no lien beyond the authorized amount.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: Defendant's exceptions after a jury verdict against the track and two officers.

Facts: A patron at Suffolk Downs was assaulted by two Boston police officers working the race meeting. The track argued they were public officers acting in the public interest, and that it ran the meet as agent for the National War Fund.

Arguments: Cowan: They were the track's employees, placed there to keep order. Track: Public officers, not our servants — and we took no profit.

Holding: Respondeat superior turns on employee status, which is a question of the right to control; the method of payment is not decisive, and no single factor controls. The evidence permitted a finding that the officers served the track.

Disposition: Exceptions overruled — verdict for the plaintiff stands.

Open in the case digest →

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?

Full brief — facts, arguments, holding, disposition

Posture: Report to the Appellate Division, then to the SJC; the only issue was scope of employment.

Facts: Rebello, a garage employee whose work included picking up and delivering cars, delivered a customer's car, arranged for the owner's daughter to pick him up the next morning, was driven to her workplace, and was told to return the car to the garage. Instead he drove home for breakfast; the collision occurred as he drove from his home toward the garage. His shift began at eight.

Arguments: Miguel: He was returning the employer's customer's car on the employer's business. Linden: The breakfast trip was his own, and he wasn't yet on the clock.

Holding: The question is whether the deviation was incidental to the employment or a departure substantial enough that the employee was serving only himself.

Disposition: The Appellate Division's order — finding for the plaintiff vacated, finding for the defendant to enter — was the decision under review; the case stands for the deviation analysis rather than for its outcome. Read the last paragraph closely before class.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: Defendants' motion for summary judgment.

Facts: Kelleher worked as an Entenmann's shipping clerk with benefits, a time clock, and a supervisor. He then bought Arnold Foods distribution rights for the Fitchburg/Leominster area. District sales manager Mutascio interviewed him, asked coworkers about his work ethic, and required a valid driver's license. Kelleher struck and killed a pedestrian while delivering.

Arguments: Wright: The distributorship is employment in contract form; the brand owners controlled him. Defendants: Independent contractor — he could hire anyone to drive the route and made his own business decisions.

Holding: The contractual label does not resolve the classification; the record showed both indicia of independence and indicia of control, and the vicarious-liability and direct-negligence theories both presented triable questions.

Disposition: Motion for summary judgment DENIED.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: Commonwealth's interlocutory appeal from denial of summary judgment.

Facts: A car struck the exterior pedestrian railing of the New Bedford–Fairhaven Bridge and fell into the Acushnet River, drowning the driver and a passenger. On the eastbound side, only the original 1901 pedestrian railing ran the full length; the interior railing and parapet curb installed by MHD in 1972–73 did not extend far enough to stop the car.

Arguments: Fortenbacher: MHD breached its duty to maintain and keep the bridge safe. Commonwealth: Railing design involves weighing alternatives — discretionary policy and planning under § 10(b) of the Tort Claims Act.

Holding: Decisions about bridge railing design and placement are the kind of policy-and-planning judgments the discretionary function exception immunizes.

Disposition: Order denying summary judgment reversed; judgment to enter for the Commonwealth. So ordered.

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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?

Full brief — facts, arguments, holding, disposition

Posture: Cross-motions on the classification question.

Facts: Ruggiero's written agreement described him as an independent contractor and gave him control over the time, place, manner, and means of his work.

Arguments: Ruggiero: G.L. c. 149, § 148B presumes employee status; the employer must disprove it. AUL: Insurance agents are conventionally independent contractors, and this one operated on "a rather long leash."

Holding: The statutory ABC test is a separate inquiry from common-law agency: the putative employer must prove all three prongs, and the contract's label does not satisfy any of them.

Disposition: Resolved on the statutory test; the doctrinal point is the divergence between common-law and statutory classification of the same worker.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal by the homeowner from a $250 judgment against him.

Facts: Mrs. Lederer asked Novera, the part-time caretaker and yardman, whether one maple tree needed care. Novera brought in Wing, a licensed tree surgeon. Accounts diverge: Novera says he told Wing to speak to the lady of the house; Wing says Novera told him to do what was necessary. Wing sprayed, pruned the maple, and root-fed several trees. Price was never discussed. Wing had no contact with Lederer.

Arguments: Wing: Novera hired me as Lederer's agent, or Lederer ratified by accepting the benefit. Lederer: No authority express, implied, or apparent — and I learned of the work only after the trees were altered.

Holding: Apparent authority depends on what the principal knowingly permits or holds the agent out as possessing; nothing Lederer did justified a belief that a part-time yardman could order extensive tree work. Ratification fails for want of a meaningful opportunity to reject.

Disposition: Judgment against Lederer reversed.

Open in the case digest →

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."

Full brief — facts, arguments, holding, disposition

Posture: Petition to the Supreme Court of Texas after the court of civil appeals rendered a take-nothing judgment.

Facts: Donald Spear, Senior Vice-President of Marketing, made an oral one-year employment agreement with Elliott; $12,500 went unpaid. The company denied Spear's authority.

Arguments: Elliott: A senior officer with marketing responsibility had authority — or at least apparent authority — to hire. Great National: Spear had no authority to bind the company to a fixed term.

Holding: There was evidence of authority, including authority to communicate the offer; the court of civil appeals erred in finding none.

Disposition: Judgment of the court of civil appeals reversed and the cause remanded to that court for consideration of its remaining points.

Open in the case digest →

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.)

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a directed verdict for Texaco.

Facts: Gizzi, a steady patron, was injured when the brakes failed on a used Volkswagen van sold to him by Russell Hinman, who leased and operated a Texaco station. Texaco owned some of the station equipment, supplied products, and ran the "trust your car to the man who wears the star" campaign.

Arguments: Gizzi: Texaco's national advertising, signage, and equipment held Hinman out as authorized. Texaco: We license a brand and sell gasoline; we never held out a station operator as authorized to sell vehicles.

Holding: Apparent authority may rest on a principal's general manifestations to the public — advertising, signs, and branded premises. Whether those manifestations made the plaintiff's belief reasonable is a jury question, not one for a directed verdict.

Disposition: Reversed and remanded for further proceedings.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: Hilton's motion for summary judgment.

Facts: Verna Drummond fell at a hotel operating under the "Hilton Inn" name. Hilton neither owned nor operated it; the franchise agreement disclaimed agency but required prominent use of the Hilton name and gave Hilton inspection rights and operating standards.

Arguments: Drummond: Hilton controlled the operation, and its branding held the hotel out as Hilton's. Hilton: Separate corporate ownership and an express no-agency clause.

Holding: The disclaimer is not dispositive. Two independent theories survive: actual agency through retained control, and apparent agency through manifestations to guests.

Disposition: Summary judgment denied.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal by the store from a judgment for the customer.

Facts: Mrs. Hoddeson paid cash on the sales floor to a well-dressed man who knew the merchandise, prices, and availability. The store had no record of the sale and no such employee.

Arguments: Hoddeson: He behaved in every respect like a salesman on your floor. Koos Bros.: We made no manifestation of anyone's authority — indeed, we have no idea who he was.

Holding: The court distinguishes authority actually granted, implied authority, and apparent authority — the last requiring manifestations from the principal, which were absent. But a proprietor who negligently permits an impostor to appear to conduct its business may be estopped, or directly liable for failing to protect customers.

Disposition: Reversed and new trial allowed on the estoppel/negligence theory.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: BMW's appeal from an $18,000 judgment for the buyer.

Facts: Cullen paid a financially failing dealer, Bavarian, for a car he never received. BMW/NA had identified deficiencies and given Bavarian sixty days to cure.

Arguments: Cullen: BMW knew the dealer was failing and let it keep operating under the mark. BMW/NA: No actual or apparent authority, and no duty to police a dealer's finances.

Holding: The district court erred; knowledge of a dealer's difficulties did not create a duty running to individual customers, and the asserted basis for holding BMW/NA liable failed.

Disposition: Reversed — judgment for the plaintiff cannot stand.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal in an action seeking a declaration that a lease extension was invalid; summary judgment granted to the landlord below.

Facts: Vartan Jinishian was president and sole stockholder of Madison Avenue Realty, the building's owner. His "managing agent" executed a store lease extension for tenant Roger Gray by informal letter. There was a writing designating the man as managing agent, but it did not specify authority to execute lease extensions. General Obligations Law § 5-703(2) requires the agent's authority to be in writing.

Arguments: Landlord: The writing is too general; the statute demands written evidence of authority for this transaction. Tenant: The designation, plus the agent's long history of negotiating and signing extensions, supplies the required written authority.

Holding: Written evidence of an agent's authority must be sufficiently specific to cover the transaction executed; a bare "managing agent" designation does not. Actual authority in fact and legally sufficient written evidence of it are different questions. A dissent would infer the broader authority from the designation plus the course of conduct.

Disposition: Lease extension held unenforceable; summary judgment for the landlord.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a finding of individual liability on a guaranty.

Facts: Dugas, chairman and chief operating officer of Automated Products of America, signed a guaranty form for the corporation's fuel debt to Flynn's Truck Stop. He struck the preprinted words "Personally and Individually," inserted the corporation's name, and signed in his corporate capacity. The trial record was 22 pages: the form and testimony from Flynn's general manager, Peter Ferraro.

Arguments: Flynn: A corporate guaranty of the corporation's own debt is meaningless; it must have been personal. Dugas: I struck the personal language and signed as an officer — that is precisely the manifestation of intent.

Holding: By amending the form and signing in a representative capacity, Dugas manifested an intent to bind only the corporation. The evidence did not support personal liability.

Disposition: Judgment reversed; judgment to enter for the defendant.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from an interlocutory decree confirming a master's report and a final decree ordering specific performance.

Facts: Bridge occupied the third floor and part of the second as a tenant at will. In January 1972, Futurity's sales manager Benjamin Rae met Bridge's treasurer Coupounas about leasing part of the first floor. On February 1 they drafted and signed a memorandum in their respective official capacities.

Arguments: Bridge: Your sales manager negotiated and signed; enforce the lease. Futurity: A sales manager has no authority to convey an interest in real estate.

Holding: The court reached the enforceability question on the master's findings. Devlin's assigned question is whether the court applied the correct doctrine — this is better understood as a scope-of-authority problem (does authority to negotiate include authority to bind?) than an equal-dignities problem.

Disposition: Decrees ordering execution and delivery of the lease affirmed.

Open in the case digest →

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.

Full brief — facts, arguments, holding, disposition

Posture: Chevron's appeal from a judgment holding it liable for cancelling a service contract.

Facts: In December 1975 Chevron hired P&A to plug and abandon a well in Breton Sound. A Chevron representative repudiated the contract without affording P&A an adequate opportunity to perform. Chevron personnel with authority learned of the repudiation and did not disavow it.

Arguments: Chevron: The representative acted without authority. P&A: Chevron knew and acquiesced; it also kept the benefit of the cancellation.

Holding: A corporation ratifies an agent's unauthorized act by knowing acquiescence and failure to repudiate within a reasonable time. Acceptance of a benefit is evidence of ratification but is not the only route to it.

Disposition: Judgment against Chevron affirmed; P&A recovers the profit it would have made.

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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?

Full brief — facts, arguments, holding, disposition

Posture: Appeal after a twenty-nine-day jury trial, with earlier partial summary judgment set aside by a successor judge.

Facts: Linkage created and ran technical training programs at a BU satellite facility. A BU officer (Meng) renewed the agreement; BU then terminated and denied any renewal. Linkage pleaded contract, tort, and c. 93A claims; BU counterclaimed.

Arguments: Linkage: Meng had apparent authority from BU's own treatment of him, and BU ratified after learning what he did. BU: No authority to renew; the agreement was lawfully terminated and never renewed.

Holding: The jury's findings that the agreement had been renewed were warranted, and the judge should not have granted BU judgment notwithstanding those findings. Apparent authority (what BU manifested before execution) and ratification (what authorized officials did after) are distinct theories that can rest on the same facts.

Disposition: Jury findings largely reinstated; judgment for BU on those claims reversed.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from judgment enforcing the transaction.

Facts: Eleanor Harris's agent made a sale on terms she had not authorized. After she and her counsel obtained access to the material facts, she failed to repudiate within a reasonable time.

Arguments: Harris: I never authorized these terms. Colony: She had the facts and her lawyer, and she sat on it.

Holding: Ratification requires knowledge of the material facts (§ 4.06) — but a principal who has access to those facts and fails to repudiate within a reasonable time ratifies. Deliberate ignorance does not preserve the objection.

Disposition: Judgment affirmed.

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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?

Full brief — facts, arguments, holding, disposition

Posture: Appeal by the employer from judgment for the employee's estate.

Facts: A February 1962 agreement hired Thomas as general manager at $725 per month, payable semi-monthly, plus a bonus of 25% of annual net profit before taxes. No term was stated.

Arguments: Thomas: The annual profit-based bonus shows a year-to-year hiring. Employer: Indefinite duration means terminable at will under the American rule.

Holding: Whether the arrangement was for a definite term is for the trier of fact; the compensation structure and surrounding circumstances can support a year-to-year hiring rather than an at-will one.

Disposition: Judgment for the employee affirmed on that basis.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from denial of the defendants' motion to dismiss the complaint.

Facts: A written 1958 contract employed Shenn as a salesman through October 31, 1959, at $200 per week plus 1% commission. He continued working after expiration without a new express agreement and was discharged in April 1965.

Arguments: Shenn: Holding over on the same terms renewed the contract annually through October 31, 1965. Fair-Tex: The written contract had a definite ending; nothing renewed it.

Holding: Continued employment after a fixed term expires does not, without more, create a new annual contract.

Disposition: Order reversed, motion to dismiss the complaint granted, with $10 costs and leave to replead.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Employer's appeal from denial of post-trial motions after a jury award for the employee.

Facts: Mettille was hired orally as a loan officer at $12,000 a year with nothing said about permanence or term. The bank later distributed an employee handbook containing job security and disciplinary procedures. He was discharged without those procedures being followed.

Arguments: Mettille: The handbook provisions became part of my contract. Bank: No consideration supported any modification; he remained at will and was free to quit at any time.

Holding: Personnel handbook provisions, if they meet the requirements of contract formation, become enforceable terms; continued employment supplies the consideration.

Disposition: Affirmed — the employee keeps his verdict.

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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.)

Full brief — facts, arguments, holding, disposition

Posture: Employer's exceptions after a $2,500 jury verdict for the employee.

Facts: Monge was hired at $1.84 an hour and told better work would bring better jobs. She claimed her foreman harassed her because she refused to date him, that the personnel manager condoned it, and that she was ultimately fired.

Arguments: Monge: The discharge was retaliation for refusing the foreman. Beebe: At-will employment; no cause of action for a discharge.

Holding: A termination of an at-will employment motivated by bad faith, malice, or retaliation is a breach of the employment contract. The court balances the employer's interest in running its business against the employee's interest in job security and the public's interest in a proper balance between them.

Disposition: Verdict for the employee sustained, though damages for mental suffering were disallowed because that suffering preceded the discharge.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal after a jury verdict for the employee on bad-faith discharge, with the judge entering judgment on a quantum meruit theory.

Facts: The jury found Maddaloni would have earned $61,000 in commissions attributable to past services, and set quantum meruit damages at $28,000.

Arguments: Maddaloni: I was fired to deprive me of commissions I had already earned. Employer: An at-will employee may be terminated at any time, and cannot recover lost future wages and benefits.

Holding: An at-will employee discharged in bad faith may recover commissions attributable to past services, but not lost future wages and fringe benefits. On the record the employer was entitled to a directed verdict on the broader damages theory.

Disposition: Judgment modified accordingly — recovery limited to compensation already earned.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal by the employee from JNOV after a $250,000 jury verdict.

Facts: Siles was hired in 1977 as a respiratory therapy specialist and later terminated. The evidence was reviewed in the light most favorable to him.

Arguments: Siles: The termination lacked any good reason, which shows bad faith. Travenol: The absence of a good reason is not evidence of bad faith.

Holding: The judge was correct: the evidence was insufficient to support a finding that the termination resulted from bad faith. A legally improper purpose must be shown.

Disposition: Judgment notwithstanding the verdict affirmed.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Review of a court of appeals decision reversing judgment for the employer.

Facts: Brockmeyer was discharged after events he claimed made the firing wrongful.

Arguments: Brockmeyer: Wisconsin should recognize exceptions to at-will employment, including an implied covenant of good faith. Dun & Bradstreet: Employer flexibility in hiring and firing should be preserved.

Holding: Wisconsin recognizes exceptions "in certain limited circumstances" — a narrow public-policy exception, enforced in contract — and declines to adopt an amorphous general requirement of good-faith termination of the Massachusetts kind.

Disposition: Public-policy exception recognized; the broader good-faith theory rejected.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal by the later purchaser from judgment for the earlier contract vendee.

Facts: Farr contracted to buy the Newmans' land for $3,000 under an unrecordable memorandum. Hardy later took a conveyance for $4,000. Hardy's attorney learned of Farr's agreement directly from Farr, concluded it was unenforceable, and never told Hardy.

Arguments: Hardy: I paid more, in good faith, and my lawyer told me nothing. Farr: Notice to the attorney handling the purchase is notice to the client.

Holding: Notice given to an agent authorized to receive it operates as notice to the principal. This is not a mere presumption that the agent passed the information along — the giving of notice to the authorized recipient is itself the legally operative act.

Disposition: Judgment affirmed — Hardy takes subject to Farr's equity.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Disqualification and imputation issues arising from a prior representation.

Facts: Counsel had previously represented a party in a substantially related matter and held confidences from that representation.

Arguments: Moving party: The prior representation is substantially related; disqualify. Opponent: The client's choice of counsel should be respected.

Holding: Where an agent is subject to a duty to another not to disclose the fact, the ordinary rule imputing the agent's knowledge to the principal does not apply. Attorney confidentiality breaks the imputation chain that Chapter 5 otherwise assumes.

Disposition: Resolved on the confidentiality/imputation ground; read it as the § 5.03(b) exception in operation.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Diversity declaratory judgment action by the insurer.

Facts: Joe Jezisek, a minor with an accident and two moving violations, traded a Pontiac for a 1960 Chevrolet; the bank required insurance. He applied through a secretary at the Wattenbarger Agency in Lamb County. Southern Farm investigated, rejected the application, and returned the premium. Coverage was then arranged in his brother George's name in another county.

Arguments: Claimants: The agent knew the true facts, so the insurer knew them. Southern Farm: The agent participated in a scheme to obtain coverage the company had refused.

Holding: Knowledge of an agent acting adversely to the principal, in concert with the third party, is not imputed. A party who deals with the agent knowing of the adverse conduct cannot invoke the protective rule.

Disposition: Reversed and judgment rendered for the insurer — the policy is void.

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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?

Full brief — facts, arguments, holding, disposition

Posture: Exceptions after trial in an insurer's action denying coverage for late notice.

Facts: The arena rented its facility to the Berlin Maroons for $100 for an afternoon game; the team hired its own ticket sellers and police. A spectator, Florence Ploude, was struck by a puck. Dr. Danais, the arena's president, was present as a spectator — he had not paid to get in — and heard the public-address announcement.

Arguments: Insurer: Notice was late. Arena: The president learned of it only as a spectator, not in his corporate capacity.

Holding: The question is in what capacity the officer acquired the knowledge. A person's knowledge is not automatically the corporation's merely because that person is an officer.

Disposition: Exceptions overruled.

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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?

Full brief — facts, arguments, holding, disposition

Posture: Summary judgment proceedings in litigation arising from the fund principal's fraud.

Facts: Nordlicht orchestrated a scheme involving Black Elk's bondholders; the defendants sought to avoid imputation of his knowledge on adverse-interest grounds.

Arguments: Defendants: He was acting adversely; don't charge us with what he knew. Plaintiffs: He was working to produce financial benefits for these very defendants.

Holding: The opinion quotes the Restatement (Third) rule directly: knowledge material to an agent's duties is imputed unless the agent acts adversely or owes a nondisclosure duty. The adverse-interest exception is narrow — the agent must totally abandon the principal's interests and act solely for himself or another. A conflict of interest is not enough, and wrongdoing that benefits the principal is not adversity.

Disposition: Summary judgment entered on the imputation issue against the parties invoking the exception.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal in the bank's action on loans, with imputation raised as a defense.

Facts: The bank's authorized vice-president and loan officer retained counsel, made the loans, and attended closings — his authorized functions. There was evidence that he (with the defendants' knowledge) submitted an old appraisal in support of a loan when a newer, lower appraisal existed, contrary to the bank's commitment letter.

Arguments: Defendants: The officer's knowledge is the bank's, defeating its claim. Bank: He was entangled in the misconduct with these very defendants; his knowledge is not ours.

Holding: Where the officer participated in the problematic transaction together with the parties now seeking to charge the bank, ordinary institutional imputation does not protect them.

Disposition: Resolved against the defendants on the imputation defense.

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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?

Full brief — facts, arguments, holding, disposition

Posture: Bankruptcy litigation over whether a complaint reached the principal through a chain of intermediaries.

Facts: The chain ran principal → State Street Bank (indenture trustee) → DTC → Cede & Co. The question was whether notice given into that system reached the top.

Arguments: Claimant: Notice into the depository system is notice to the principal. Respondent: Each intermediary's duties are defined and limited.

Holding: Imputation may operate through subagents, but only where receiving or transmitting the particular communication was within the scope of that link's agency. The court asks specifically whether DTC had an obligation within its agency to transmit the complaint up the chain.

Disposition: Decided on the scope-of-each-link analysis; use it as the method for any multi-entity notice problem.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from the T.T.A.B. in a cancellation proceeding.

Facts: Great Plains registered a mark in 1971 claiming first use in 1961; Georgia-Pacific petitioned to cancel in 1973, asserting prior rights in its G-P mark. Georgia-Pacific salespeople had seen the mark in the field for years while working as salespeople.

Arguments: Great Plains: Your own people knew for years — laches and estoppel. Georgia-Pacific: Salespeople are not agents authorized to receive that kind of legally significant notice.

Holding: Whether knowledge is charged to the corporation depends on whether this class of agent was authorized to receive this kind of communication; authority to sell does not establish authority to receive every notice addressed to the company. On the merits the court found a likelihood of confusion.

Disposition: Decision of the board affirmed in Georgia-Pacific's favor.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Employer's suit to enjoin a former instructor from working for a competitor.

Facts: Witter, a dance instructor, left Arthur Murray for Fred Astaire Studios. His contract barred him from working for a competitor after leaving. The opinion surveys the then-chaotic body of noncompete law at length.

Arguments: Arthur Murray: Enforce the covenant and pull him out of the competitor's studio. Witter: Once employment ends, I'm free to practice my trade.

Holding: Enforcement of a post-employment restraint is equitable and turns on whether the employer faces irreparable injury — if not, an injunction is ordinarily denied. The default agency duty not to compete ends with the employment; only a contract extends it.

Disposition: Injunction denied as to the general restraint; the opinion is assigned for the reasonableness framework and the remedy analysis rather than the outcome.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from an injunction against a former employee.

Facts: DeVoe signed a contract with Pop's Vinyl Tops in Decatur containing a two-year nondisclosure and a five-year noncompete within fifty miles, at $200 a week and with no stated term of employment. He had little or no experience installing vinyl roofs before the job.

Arguments: Employer: We trained him; the covenant protects that investment. DeVoe: There is no protectable interest — this is a general trade, not a secret.

Holding: A restraint is enforceable only if the employer has a protectable business interest and the restraint is reasonable in scope, duration, and geography. Training in a general trade is not such an interest.

Disposition: Judgment reversed and the cause remanded — injunction improper.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from summary judgment on the contract count and a jury verdict for the employee on the trade secret count.

Facts: Rezatto worked nearly seven years for the plaintiff's insurance agency, then competed.

Arguments: 1st American: Breach of the covenant and misuse of trade secrets. Rezatto: The covenant is void as a restraint on trade, and the information isn't secret.

Holding: The trial court's disposition was erroneous; the case is reversed for reconsideration. The doctrinal separation matters: absent an enforceable covenant a former employee may compete, but the duty not to use the former employer's confidential information is independent and survives.

Disposition: Reversed and remanded for proceedings consistent with the opinion.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Consolidated appeals; employer sought damages and an injunction, employees counterclaimed for vested profit-sharing interests.

Facts: Four employees signed noncompetes after beginning work. The employer also sued Career Resources and its president Micah Garber for tortious interference.

Arguments: National Recruiters: Continued employment and access to training supply consideration. Employees: The preexisting-duty rule defeats a modification unsupported by new consideration.

Holding: The noncompetition clause is invalid for want of consideration where it was exacted after employment began without independent consideration. Minnesota examines the sufficiency of consideration given after the employee agrees to the added terms.

Disposition: Reversed in part, affirmed in part, and remanded.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from dismissal of the employer's amended bill seeking an injunction and damages.

Facts: Metzner and a colleague — officers and high-level managerial employees — made preparations to open a competing shredder operation while still employed. The employer had been presented with, and did not pursue, the relevant opportunity.

Arguments: Maryland Metals: Managerial employees owe undivided loyalty while employed. Metzner: Preparation to compete after leaving is lawful, and the company abandoned the opportunity.

Holding: Employees may make preparations to compete before termination without breaching fiduciary duties, provided they do not otherwise act to the employer's detriment; the chancellor correctly dismissed the complaint. The opinion states both competing policies expressly.

Disposition: Dismissal of the amended bill affirmed.

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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:

Full brief — facts, arguments, holding, disposition

Posture: Appeal from findings of liability for breach of fiduciary duty; damages contested.

Facts: Francis Driscoll (general manager of BBF's Silicon division) and John Q. Adams, Jr. (marketing manager) learned, before it was public, that Solitron wanted to sell its germanium operation. With attorney Oliver Ward — an outsider to BBF — they pursued it themselves.

Arguments: Defendants: BBF wouldn't or couldn't have taken the opportunity anyway. BBF: You used confidential knowledge of our corporate opportunity while owing us fiduciary duties.

Holding: The circumstances the defendants pointed to did not relieve them of liability for misuse of Driscoll's and Adams's confidential knowledge of BBF's corporate opportunity; those circumstances bear on causation and the extent of damages, not on liability.

Disposition: Liability sustained; the live questions concern damages — including whether salaries paid during the period of disloyalty are recoverable.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Preliminary injunction litigation over restrictive covenants, with a choice-of-law fight.

Facts: Day's agreement contained nonsolicitation and noncompetition provisions and selected Delaware law; he left for a competitor and argued Massachusetts law should govern.

Arguments: Day: Massachusetts law applies and the restriction fails under it. NuVasive: The parties chose Delaware law and the nonsolicitation clause is enforceable under it.

Holding: The chosen law governs, and the nonsolicitation provision was enforceable under it; certain contract claims were dismissed under Massachusetts law.

Disposition: Enforcement granted on the nonsolicitation provision under the selected law.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Employer's motion for a preliminary injunction, granted below.

Facts: Hermalyn, a senior DraftKings executive, left for Fanatics. His agreement had a Massachusetts choice-of-law clause and a one-year noncompete; he moved to California and argued for California law, which generally voids such restraints.

Arguments: Hermalyn: California policy governs where I now work. DraftKings: Massachusetts law was chosen, and the covenant complies with G.L. c. 149, § 24L.

Holding: The Massachusetts choice-of-law clause controls, and the one-year restriction is enforceable within the statute's limits.

Disposition: Preliminary injunction granted to the former employer.

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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.

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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal by a withdrawing attorney from an order compelling him to turn over case files.

Facts: Attorney Harry Shriman withdrew by leave of court from a trade-secret action. Remaining counsel petitioned for the files. Shriman asserted a common-law retaining lien and asked for an evidentiary hearing on the amount owed. The court ordered turnover but granted him a statutory lien, amount to be fixed on settlement or favorable judgment.

Arguments: Shriman: Possession is the lien; I keep the files until paid. Client: You're holding a live case hostage.

Holding: A retaining lien can be displaced where equity requires, with a statutory lien substituted on the eventual recovery — but the attorney was entitled to procedural protection on the amount.

Disposition: Affirmed in part; reversed in part; remanded with directions.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a Probate Court judgment dismissing a petition to enforce an attorney's lien under G.L. c. 221, § 50.

Facts: The attorney represented the husband beginning a year after the divorce nisi. A supplemental judgment incorporated a separation agreement; property was later sold and $40,000 placed in escrow to cover capital gains taxes and encumbrances, with the remainder reverting to the wife. The wife objected to the lien; the judge denied it. The attorney argued his efforts produced a higher sale price and protected against a "side deal."

Arguments: Attorney: But for my work there'd be no fund. Wife: The escrow was never an order in the husband's favor.

Holding: Section 50 reaches a "judgment, decree or other order in his client's favor." Escrowed funds held in a neutral depository for a special purpose inconsistent with the lien claim partake of a trusteeship; the attorney's asserted contributions, even if proved, would not convert the escrow into an order in the husband's favor.

Disposition: Dismissal affirmed.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Certified questions from the First Circuit (In re Engage, Inc.).

Facts: Ropes & Gray performed patent prosecution work for Engage, which entered bankruptcy; the liquidating supervisor objected to the firm's lien on patents and on the proceeds of their sale.

Arguments: Ropes & Gray: § 50 covers this work and follows the sale proceeds. Jalbert: The statute is about judgments in litigation.

Holding: Both questions answered yes. Section 50 grants a lien on patents and patent applications for patent prosecution work, and the lien attaches to the proceeds of their sale — "proceeds derived therefrom" relates back to all the preceding clauses, and the legislative purpose of protecting the unpaid attorney would otherwise be frustrated.

Disposition: Certified questions answered in the affirmative.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Error proceeding from a replevin judgment.

Facts: The plaintiff held a recorded chattel mortgage on a car; the defendant garageman towed, repaired, and stored it at the owner's request and retained possession. The trial court gave the plaintiff possession subject to the defendant's lien.

Arguments: Mortgagee: My recorded interest came first. Garageman: My statutory possessory lien for towing, repair, and storage has priority while I hold the car.

Holding: A garageman's valid possessory lien for towing, repairs, and storage has priority over a previously perfected security interest so long as possession continues. The storage component was sustained because the owner requested it.

Disposition: Trial court's ruling sustained.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal in a bill in equity, with evidence reported and the judge's findings of material fact.

Facts: Williams delivered loam and obtained a $3,295.89 finding against Bradford Estates in District Court. Bradford had taken title to Westfield land on June 19, 1947 and mortgaged it to Investors the same day for $15,000; Investors supplied the purchase price. The judge found Bradford was a "straw" for Investors and that the transactions were in fraud of creditors. But there was no evidence of the delivery, value, or timing of the loam on the premises described in the bill.

Arguments: Williams: Investors is the real owner; make it pay. Investors: Not a party to the judgment, and the plaintiff already elected by suing the agent.

Holding: The unjust enrichment finding lacked evidentiary support. And treating Bradford as holding title as agent for an undisclosed principal, the plaintiff could have proceeded against agent or principal at his election, but not both jointly; having taken judgment against the agent, he cannot treat that judgment as a cause of action against the principal.

Disposition: Bill should have been dismissed as against Investors.

⚠ Note for modern practice: Restatement (Third) § 6.09 rejects this election rule — judgment against one discharges neither, and only satisfaction discharges, to the extent satisfied. Williams is Massachusetts law the SJC has not disavowed; know both.

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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

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?

Full brief — facts, arguments, holding, disposition

Posture: Appeals from orders adjudicating a partnership bankrupt and from an order on the claim.

Facts: Kaufman and Brown financed a potato-growing operation run by Horton and Althouse under written contracts, and filed as creditors in bankruptcy. They advanced more than the contracts required, came to California, made recommendations on operations, and had access to partnership books.

Arguments: Kaufman-Brown: We were lenders protecting an investment. Trustee/creditors: You acted as co-owners — which drops you behind us under UPA § 40 and exposes you under § 15.

Holding: The record contains the essentials of a partnership and substantial proof that Horton and Althouse so intended. Advances beyond contract requirements are consistent with either relation, but taken with the control and profit participation they support co-ownership.

Disposition: Orders adjudging the combination bankrupt reversed; the order on the Kaufman-Brown claim affirmed; remanded. ("Affirmed, reversed, and remanded.")

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal in a creditor's action seeking to hold lenders liable as partners.

Facts: A failing brokerage (Knauth, Nachod & Kühne) received a large loan of securities from Peyton, Perkins, and Freeman. The lenders took a share of profits, option rights, veto powers over speculative or injurious business, resignations held in escrow, and extensive reporting.

Arguments: Martin: Those controls make them partners, liable for the firm's debts. Lenders: Every provision was security for a loan.

Holding: "Mere words will not blind us to realities," and a statement that no partnership is intended is not conclusive — but control taken as security is not co-ownership. The veto over highly speculative or injurious business is "but a provision for the protection of the lenders."

Disposition: Judgment for the defendants — creditors, not partners.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from denial of an accounting and liquidation.

Facts: A farming partnership leasing and farming some 13,000 acres, in existence since 1925 and managed by R.A. Pickens since 1937. At the end of 1975 there were 22 partners; R.A. Pickens & Son held the largest interest at 31%. The agreement provided for a book value buyout.

Arguments: Frank: I'm entitled to an accounting and liquidation, and book value undervalues my interest. Partnership: The agreement's terms govern, and they bind everyone equally.

Holding: Partners may structure profit shares, management rights, and buyout formulas unequally; the arrangement is still a partnership, and the agreed book-value measure controls.

Disposition: Affirmed — no liquidation.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a Supreme Court judgment reversing the Commission.

Facts: Arline Chesire was hired as cashier and receptionist at $15 a week in the United Beauty Shoppe. When she sought a raise in December 1938, an agreement styled her a partner with 20% of profits — while she kept her salary, contributed no capital, bore no losses, had no management rights, and had no interest on dissolution. If an employee, she was the eighth, making Fenwick a covered employer for 1939.

Arguments: Commission: She was an employee in substance. Fenwick: We signed a partnership agreement, and no fraud is alleged.

Holding: Partnership turns on a cluster of factors — intention, profit sharing, loss sharing, capital contribution, control, conduct toward third parties, and rights on dissolution. On these facts the arrangement was a method of compensation, not co-ownership.

Disposition: Judgment reversed — she was an employee.

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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.

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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a judgment finding a partnership and ordering relief.

Facts: Sweet began as an hourly employee in Charles Vohland's nursery in 1956. When Paul Vohland took over around 1963, Sweet's status changed: he received 20% of net profits after all expenses — labor, gas, insurance, burlap, nails, insecticide, fertilizer, seed, straw, stock, seedlings — computed at irregular joint settlements. It was called a commission.

Arguments: Sweet: Sharing the net after every expense is co-ownership. Vohland: A commission arrangement with a longtime employee.

Holding: Intent means the intent to do the things that constitute a partnership; parties are partners notwithstanding an express stipulation otherwise. Substance, not the name of the arrangement, determines the relation.

Disposition: Affirmed — partnership found.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Defendant's appeal from a finding of individual liability.

Facts: Amory's October 29, 1997 proposal letter went to Checroune, Atlan, and "South Shore Realty Investors" in care of Boston United Realty Corp. Atlan signed the acceptance line. South Shore Realty, LLC had been created on October 16 and bought the "old Patriot Ledger Building" in Quincy that day from Boston United Realty, of which Checroune was president and treasurer.

Arguments: Checroune: I acted solely as an agent for a disclosed principal. Amory: I dealt with the individuals and the name they used.

Holding: The agency defense fails where the individuals held themselves out in a manner supporting partnership by estoppel; the trial judge's finding of individual liability was warranted.

Disposition: Judgment in favor of Amory affirmed.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from an order granting the defendants' motion to dismiss and denying the plaintiffs' cross-motion.

Facts: A two-page 1964 agreement created the Captain Parker Arms Partnership to acquire Lexington land and build apartments "for the term of thirty years." A nominee trust (T&N Realty Trust) held title, and the agreement incorporated c. 108A. The business continued well past 1994. Plaintiffs sought declarations that the partnership was at will, that they had lawfully terminated it, and that winding up and liquidation were required.

Arguments: Plaintiffs: The term expired; this is now a partnership at will. Defendants: The arrangement continued on its original terms.

Holding: A term partnership whose stated term has expired, with the business continuing, becomes a partnership at will — dissolvable by any partner at any time, triggering winding up.

Disposition: Resolved on the at-will characterization; the drafting lesson is the point.

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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."

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a judgment for the plaintiff coadventurer.

Facts: Salmon took a twenty-year lease on the Bristol Hotel; Meinhard put up half the money and shared profits and losses, with Salmon managing. Near the end of the term the lessor (Gerry) offered Salmon a far larger project covering the Bristol and adjoining parcels. Salmon took it through his own corporation without telling Meinhard.

Arguments: Meinhard: The opportunity came to you because you managed our venture; you owed me the chance. Salmon: The venture concerned the Bristol lease, which was expiring; this was a new and different undertaking.

Holding: Joint adventurers owe one another "the duty of the finest loyalty" — "not honesty alone, but the punctilio of an honor the most sensitive." The new lease was an extension and enlargement of the subject matter of the venture and came to Salmon as manager; he was bound at least to disclose and give Meinhard the chance to compete for it.

Disposition: Judgment for Meinhard, with his interest in the new venture fixed by the court (a fraction of the shares, one share less than half, to preserve Salmon's control).

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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.

Full brief — facts, arguments, holding, disposition

Posture: Cross-appeals after trial on claims for amounts due under the partnership agreement and counterclaims for breach of loyalty.

Facts: Meehan, Boyle, and Cohen left Parker Coulter to start their own firm. Before giving notice they made logistical preparations, and — while still partners — prepared and sent letters to clients, using firm resources, before the firm could respond. When asked directly about rumors they were leaving, they denied or deflected.

Arguments: MBC: Preparation to leave is lawful, and we're owed our partnership amounts. Parker Coulter: You misled us, used firm resources, and unfairly acquired client consent.

Holding: Partners may prepare to compete, but they breached by unfairly acquiring consent from clients through secrecy, misleading denials, and a head start using firm resources. The burden shifts to the departing partners to prove the clients would have followed them in any event.

Disposition: Judgment below reversed and the case remanded to the Superior Court for further proceedings consistent with the opinion.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal by the former partners from a determination that they breached fiduciary duty, and from a $1,861,045 damage award.

Facts: Gibbs and Sheehan, the only trusts-and-estates partners at BAM, prepared to move to Chadbourne & Parke. An April 26, 1991 memorandum containing confidential firm employment data — compensation and the firm's own valuation of each employee — went to Chadbourne, and Sheehan testified it was prepared in connection with talking to other firms. They recruited departmental staff before giving notice.

Arguments: Plaintiffs: Partners may invite qualified personnel to move with them. BAM: You handed a competitor confidential data calculated to give it an unfair recruiting advantage.

Holding: Disclosure of confidential firm data to even one competing firm was a direct breach of the duty of loyalty; recruiting while still partners and before notice deprived BAM of the chance to retain its own people.

Disposition: Liability sustained but the order modified, the damage award vacated, and the matter remanded for recomputation.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal on an agreed statement of facts.

Facts: Stroud and Freeman were equal general partners in Stroud's Food Center, with no restriction on either's authority in the articles. Months before February 1956 Stroud told Nabisco he would not be personally responsible for additional bread. Between February 6 and 25, Nabisco sold $171.04 of bread at Freeman's request.

Arguments: Stroud: I gave notice; don't charge me. Nabisco: Buying bread is ordinary partnership business and Freeman was a general partner.

Holding: Each partner has an equal right to manage; in a two-person partnership "half of the members are not a majority," so one partner cannot restrict the other's authority as to ordinary business. Activities within the scope of the business are limited only by the expressed will of a majority.

Disposition: Judgment for Nabisco — Stroud liable.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Review after the Court of Appeals held the partner vicariously liable but rejected the UTPA claim.

Facts: Mead represented Roach beginning in 1974 on traffic charges and later on business matters; Berentson prepared Roach's tax returns. Mead and Berentson formed a partnership on November 1, 1979. Mead then borrowed money from Roach and did not repay it. There was expert testimony that a lawyer seeking a loan from a client must advise the client to obtain independent counsel, secure the loan, and warn about a usurious rate.

Arguments: Berentson: A personal loan is outside the scope of the partnership's business. Roach: I relied on my lawyer for advice about the loan.

Holding: Mead's failures were failures as a lawyer advising a client, and the partnership's services included investment advice; because they occurred within the scope of the legal partnership, responsibility is charged to his partner.

Disposition: Court of Appeals affirmed — partner vicariously liable.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a judgment permitting the majority partners to purchase at a judicially supervised dissolution sale.

Facts: Three partners in a partnership at will owned the West Plaza Shopping Center in Phoenix. The two majority partners sought dissolution, alleging the third was derelict and had failed to contribute his $6,000 share of operating losses, and had excluded him from management.

Arguments: Prentiss: You froze me out and then bought the assets. Majority: Dissolution was proper and our bidding raised the price he received.

Holding: Two majority partners who excluded the third may nonetheless purchase partnership assets at a judicially supervised dissolution sale where there is no fraud and the exclusion did not depress the price.

Disposition: Judgment of the superior court affirmed.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a judgment for the selling brother.

Facts: Brothers Charles and Sonny formed a milk-hauling partnership in 1967. In July 1984 Sonny gave notice of dissolution, wrote to Dairymen Inc. cancelling the partnership's hauling contract effective October 16, and asked to haul for DI himself. On September 24 they signed a "Partnership Sales Agreement" providing for a private auction of all assets "including equipment, and milk routes," void if DI withheld approval, and containing a covenant not to compete. Charles won the auction at $86,000 on September 27. That same day DI's producers voted not to approve Charles and chose Sonny.

Arguments: Sonny: The contract required DI approval, which never came; the agreement was void. Charles: You positioned yourself to take the very asset we were auctioning.

Holding: The trial court's reasoning ignored Sonny's own conduct: a partner's fiduciary duty continues through winding up, and he may not compete for the asset being sold.

Disposition: Reversed and remanded for entry of a new judgment consistent with the opinion.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Plaintiffs' appeal from a final decree after a master's reports.

Facts: In April 1961 Johnson, Walker, and Kennedy formed the Triangle Insurance Agency by oral agreement, each with a one-third interest, with no agreed duration. An unexecuted draft would have specified twenty-five years. Kennedy terminated the arrangement. The master valued the business at $25,000 at dissolution.

Arguments: Plaintiffs: The dissolution was wrongful and we're owed damages and going-concern value. Kennedy: No definite term, so any partner could dissolve at will.

Holding: In a partnership of indefinite duration any partner may lawfully dissolve at any time (§ 31(1)(b)); the unexecuted twenty-five-year draft did not change that. Kennedy's termination, "however unseemly in manner and method, was not a legal wrong." Because dissolution was rightful the partners share equally, and the $25,000 valuation had no basis where the firm was not to continue.

Disposition: Final decree modified — dismissing the counterclaim and dismissing the bill as to Marjorie Kennedy — and as modified, affirmed.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal by the defendant brother from a judgment ordering a court-determined division rather than a sale.

Facts: Three brothers ran two feed mills as partners with no written articles. On October 4, 1975 the plaintiffs served a notice of dissolution alleging no fault or contravention. At the March 1977 hearing the defendant asked that the partnership be sold under the Wisconsin analogue of UPA § 38.

Arguments: Defendant: I didn't wrongfully dissolve, so I can force liquidation by an actual sale. Plaintiffs: Let the court value the assets and pay him his share in cash.

Holding: Unless otherwise agreed, a partner who has not wrongfully dissolved has the right to wind up and therefore to force a sale; a court may not impose an in-kind distribution. A sale is the best means of determining true fair market value, and the resulting hardship is avoidable only by a partnership agreement.

Disposition: Judgment reversed and cause remanded for proceedings consistent with the opinion.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from orders granting judgment to several withdrawn partners.

Facts: The law firm Popkin & Stern entered a long-term lease. Sheehan was a partner when it was signed. Noelker, Burdette, Lageson, and Klar became partners afterward and left before the breach.

Arguments: Landlord: All of them are on the hook for the remaining rent. Later partners: Under § 358.170 our liability for pre-admission obligations is satisfiable only out of partnership property.

Holding: Each admission or withdrawal dissolves the existing partnership and creates a new one; debts of the dissolved firm may become debts of the new one but remain the personal obligations of the old firm's partners. A lease implicates both privity of contract and privity of estate. Partners who withdrew before the breach are not personally liable for rent accruing afterward; the landlord must look to the partnership it contracted with and to the assignees.

Disposition: Judgments in favor of the withdrawn partners affirmed.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Limited partners' appeal from dismissal of their action for an accounting and dissolution.

Facts: The sole general partner sold its own land to the limited partnership at a profit. The partnership articles permitted the limited partners to consent to such a profit only after the sale. They were informed afterward and did not object.

Arguments: Limited partners: We never consented in the manner the articles require. General partner: Their conduct after learning of the profit implied consent.

Holding: Under the articles the limited partners could consent only after the sale; consent cannot be implied from their conduct after being informed. The general partner is accountable for the profit to which they did not consent.

Disposition: Reversed and remanded, including for determination of counsel fees.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from dismissal of claims against the LLC's manager.

Facts: Thinktank, LLC, a web design and marketing company, was involuntarily dissolved effective May 30, 2002 for failing to file its 2001 annual report. Topel continued to incur obligations on its behalf. The legislature had amended § 10-10 of the Illinois LLC Act to remove the provision imposing personal liability in the manner of the Business Corporation Act.

Arguments: Creditors: Under corporate principles he would be personally liable. Topel: The legislature deliberately removed that provision.

Holding: The Act does not provide for a member's or manager's personal liability to third parties for the LLC's debts, and no rule of construction permits a court to declare the legislature did not mean what the plain language imports.

Disposition: Dismissal affirmed, the court noting expressly that the ruling "does not provide an equitable result" but that it was bound by the statute.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from summary judgment for the LLC's manager.

Facts: Bonnie Sue Strickland was manager and 17% owner of the Strickland Family LLC, formed August 4, 2000 as part of an estate plan; 83% of the equity was transferred to daughter Suzy on December 24, 2000. After Jake Strickland's death in 2002, the manager sold LLC real property. The operating agreement required managers to act in the best interest of the LLC and equity owners, and barred action having a material adverse effect on a similarly situated group of equity owners without consent.

Arguments: Harbison: You sold the property without considering my interests or obtaining consent. Strickland: As manager I may dispose of LLC property.

Holding: The trial court's view that the manager could dispose of property as she saw fit is irreconcilable with the operating agreement; she produced no evidence that she considered the LLC's interests.

Disposition: Reversed and remanded to determine whether she violated her duties under the agreement.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Cross-motions for summary judgment.

Facts: Neptune Towers, a 1971 Massachusetts limited partnership governed by a written agreement, owned 334 units of rental housing in Lynn. The Class A limited partners challenged the general partners' sale of the property and also sued attorney William Bailey.

Arguments: Class A limited partners: Breach of fiduciary duty, directly and derivatively. Defendants: The agreement authorized everything we did, and Bailey was never your lawyer.

Holding: The general partners "run Neptune Towers and did nothing not authorized in the Partnership Agreement." Bailey was not a partner or trustee of the Class A limited partners, was not engaged by them, and owed them no fiduciary, common-law, or contractual duty.

Disposition: Judgment for the defendants on all four counts — the direct and derivative claims against both the general partners and the attorney cannot stand.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Limited partners' appeal from judgment for the general partners after a jury-waived trial.

Facts: Wolff, Fowler, and Millman formed The Cambridge Company in 1984 to acquire and operate commercial real estate. The general partners bought large parcels neighboring the limited partnership's project without involving the limited partners, and charged fees for services provided to the partnership. The judge found the activities reasonable and within ordinary management, and the fees within market rates.

Arguments: Limited partners: Breach of contract and fiduciary duty; misappropriation of partnership opportunities; unreasonable fees. General partners: The limited partnership agreement expressly allowed all of it.

Holding: Because the agreement expressly allowed the general partners' actions, the claims fail. Even if the burden of proving fairness fell on the general partners under Starr v. Fordham, they amply met it.

Disposition: Affirmed — all limited partner claims rejected.

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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).

Full brief — facts, arguments, holding, disposition

Posture: Appeal from summary judgment for the defendants.

Facts: Milliken sought to recover an $8,754,680.11 trade debt owed by Duro Industries (Old Duro) from Duro Textiles, LLC (New Duro), alleging that Patriarch Partners and related entities orchestrated an acquisition of Old Duro's assets while shedding unsecured debt.

Arguments: Milliken: De facto merger or mere continuation; and c. 93A liability for the scheme. Defendants: An arm's-length foreclosure and asset purchase, and no c. 93A relationship with Milliken.

Holding: New Duro was not entitled to summary judgment on the successor-liability theory as the court analyzed it, but on c. 93A the claim failed: Milliken's commercial relationship was with Old Duro, and the entities it accused of the scheme did not stand in the relationship c. 93A requires.

Disposition: Summary judgment for the defendants on the c. 93A count affirmed; the successor-liability analysis is the assigned teaching.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from judgments for the withdrawn partners and partial summary judgment for the firm on collateral estoppel.

Facts: Pettingell had invalidated a provision imposing adverse consequences on withdrawing partners who competed. The firm then amended its agreement to impose identical financial consequences on all partners who voluntarily withdraw. The plaintiffs withdrew and forfeited accrued interests (APICs); none had reached the age-sixty or twenty-year benchmarks.

Arguments: Plaintiffs: The forfeiture still burdens departure and restricts client choice, violating Rule 5.6. Firm: It applies regardless of competition.

Holding: The amended agreement does not violate Rule 5.6, because the consequences do not turn on whether the departing partner competes. Whether the provision might offend the rule as to partners who have reached the age or seniority benchmarks is not before the court.

Disposition: Judgments for the plaintiffs on the Rule 5.6 claims reversed; partial summary judgment for the firm on collateral estoppel affirmed; remanded for entry of judgment for Morrison Mahoney.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Application for judicial dissolution.

Facts: Two ophthalmologists practiced together from 1995 through three entities: Cornea Consultants, LLP (sole partners) and two LLCs, LESB and LECB (sole members and managers). There were no written operating agreements for either LLC, and the two were completely deadlocked.

Arguments: Rapoza: Dissolve; we cannot function. Talamo: Contested the terms and consequences.

Holding: Under G.L. c. 156C, § 44, the court may decree dissolution when it is not reasonably practicable to carry on the business in conformity with the certificate of organization or the operating agreement. With total deadlock between the only two members and no operating agreements, that standard is met.

Disposition: Dissolution of the partnership and of both LLCs decreed.

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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)?

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:

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?

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a Chancery Division declaratory judgment that the donation was intra vires.

Facts: The corporation donated to Princeton University; shareholders objected. New Jersey law provided that every corporate charter thereafter granted was subject to legislative alteration, and statutes had come to authorize corporate charitable giving.

Arguments: Barlow: The board is giving away shareholders' money without authority. Company: The gift is authorized by statute and serves long-term corporate interests.

Holding: The donation was intra vires, supported both by the enabling statutes (validly applied to a pre-existing corporation under the reserved power) and by the modern view that corporate philanthropy serves the corporation.

Disposition: Declaration that the gift was lawful affirmed.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Derivative suits tried on two causes of action.

Facts: Celanese directors approved a radio advertising program late in 1941 featuring Jean Tennyson, a professional singer and the wife of president Dr. Camille Dreyfus. The second claim challenged $30,000 a year paid to Henri Dreyfus, a vice-president and director, under an employment contract.

Arguments: Shareholders: The program was a vehicle for the president's wife, and the employment contract was self-dealing. Directors: Advertising is an ordinary business judgment, the fee was reasonable, and the program served corporate purposes.

Holding: The business judgment rule protects informed, disinterested decisions — but the involvement of a director's relative removes the transaction from the rule's ordinary protection and subjects it to closer scrutiny for good faith and inherent fairness. On the evidence, the program served the corporation and the compensation was reasonable.

Disposition: Both causes of action dismissed on the merits.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from dismissal of the amended complaint on the defendants' motion.

Facts: A minority shareholder sued derivatively over Wrigley's refusal to install lights and schedule night games at Wrigley Field, alleging losses from weekday games. Wrigley's stated reasons included the effect of night baseball on the surrounding neighborhood.

Arguments: Shlensky: Negligence and mismanagement; every other club plays at night. Wrigley: Absent fraud, illegality, or conflict, the decision is the board's.

Holding: Courts will not interfere absent a showing of fraud, illegality, or conflict of interest; directors may weigh long-term effects such as the neighborhood's deterioration and the property's value, and "mere failure to 'follow the crowd' is not such a dereliction."

Disposition: Dismissal affirmed.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal after denial of partial summary judgment and a bench trial.

Facts: Menard offered $1,450,000 for 30 acres. Arthur Sterling, Dage's president, accepted in a written agreement representing that he had authority to bind the company. Of six directors only Sterling and his wife lived in Indiana, and Sterling had long operated Dage without significant board input. The board disapproved and refused to close. Menard had no notice that the board had limited Sterling's authority as to this parcel.

Arguments: Menard: The president who ran the company signed and represented his authority. Dage: The board reserved approval and exercised it.

Holding: As president, Sterling possessed inherent authority to bind the corporation in these circumstances, where he had long acted without board involvement and the buyer lacked notice of the limitation. A dissent objects that the buyer knew the deal had to go to the board, it did, and the board said no.

Disposition: Contract held binding on Dage.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from dismissal of the derivative complaint after trial before Judge Dooling.

Facts: Lillian Burg held one-third of Darand Realty, a New York corporation owning low-rent Brooklyn buildings; the Horns held the rest and managed it. They acquired nine similar Brooklyn buildings for themselves. Burg knew when she invested that the Horns already owned and continued to acquire such properties, and there was no agreement to offer everything to Darand.

Arguments: Burg: Their function was locating properties; those were corporate opportunities. Horns: No agreement, no expectancy, and she knew our practice from the start.

Holding: Under New York law the properties were not corporate opportunities of Darand; the duty in a close corporation is shaped by the parties' understanding at formation, and the line-of-business test is not mechanical. A dissent applies Meinhard and would find a fiduciary obligation to offer the properties first.

Disposition: Judgment for the defendants affirmed.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Defendants' motion for summary judgment.

Facts: Manchester Sand, a wholly-owned subsidiary of Boston Sand, owned about 3,000 acres in Hooksett, New Hampshire. On May 21, 1996 Boston Sand's board unanimously authorized leasing a mined-out 42-acre parcel to Ankat Properties — owned by two of Boston Sand's own officers and directors, Dean M. Boylan, Jr. and Jeanne-Marie Boylan — for $2,000 a month with a three-year option to buy. A separate claim concerned trucking services provided by Collden. Disinterested directors purported to ratify the lease in 2006.

Arguments: Plaintiffs: Classic self-dealing by fiduciaries. Defendants: Board-authorized, later ratified by disinterested directors, and protected by the business judgment rule.

Holding: When a disinterested board refers a demand to a disinterested standing committee, both receive business judgment rule protection — but whether the 2006 ratification satisfies the three-tier Houle test requires an evidentiary hearing.

Disposition: Summary judgment DENIED on the fiduciary duty and contract claims regarding the lease, and DENIED on the Collden trucking claim (with relief limited to prospective injunctive relief if the estate prevails).

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from dismissal of the negligence claim on jurisdictional grounds.

Facts: Tiny's Tavern of Charlo, Inc., a Montana corporation whose sole shareholder Lenora Liberty is a tribal member, operates within the exterior boundaries of the Flathead Indian Reservation. Zempel, a nonmember, sued the corporation, Liberty, and Herak.

Arguments: Defendants: Tribal court has adjudicative jurisdiction. Zempel: Montana's general rule bars tribal jurisdiction over suits against nonmembers.

Holding: The tribal court lacks adjudicative jurisdiction over a nonmember's claim against a Montana corporation and a tribal member; no federal statute or treaty provides it, and no qualifying consensual relationship or threat to tribal self-government was shown.

Disposition: Dismissal of Herak affirmed; dismissal of the corporation and Liberty reversed; remanded.

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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).

Full brief — facts, arguments, holding, disposition

Posture: Appeal from the Appellate Division's reversal of an order dismissing the complaint.

Facts: Walkovszky was run down by a cab owned by Seon Cab Corporation and driven by Marchese. Carlton was alleged to be a stockholder of ten corporations, each holding two cabs carrying the $10,000 statutory minimum insurance, allegedly operated as a single enterprise for financing, supplies, repairs, employees, and garaging.

Arguments: Walkovszky: The fragmented structure is an unlawful attempt to defraud the public. Carlton: Complying with the statutory minimum is not fraud; sue the corporation that owned the cab.

Holding: The allegation that the corporations operated as a single enterprise would, at most, make the affiliated corporations liable — not the stockholder personally. To reach Carlton individually the complaint had to allege he was conducting the business in his individual capacity, which it did not. (Keating, J., dissenting.)

Disposition: Complaint held insufficient against Carlton personally.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Defendants' motion for summary judgment.

Facts: On March 7, 2000 at Logan Airport, a cab owned by Elsie's Cab, Inc. and operated by Ikechukwuka under an alleged lease cut into the taxi line; when dispatcher Jennifer Howie wrote a violation ticket, he rolled the cab onto her foot. The cab was a "Boston Cab," painted like every other, dispatched by a number answered as "The Boston Cab Company," with drivers carrying Boston Cab business cards — amid individual incorporations and self-insured status.

Arguments: Howie: The branding and integrated operation show a single enterprise behind the one-cab shells. Defendants: Separate corporations, separate liability.

Holding: On this record the claims against the related entities survive; the branding and integration distinguish the case from a bare allegation of common ownership. The court also noted the practical efficiency of trying the claims together with common counsel.

Disposition: Motion for summary judgment denied; remaining arguments rejected as without merit.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from summary judgment for Sea-Land piercing and reverse-piercing five corporations.

Facts: Sea-Land shipped Jamaican peppers for The Pepper Source, which never paid the freight bill; a $86,767.70 default judgment went unsatisfied after PS was dissolved for failure to pay franchise tax and proved to have no assets. Marchese ran five corporations with no formalities, no records, no meetings, and virtually no capital, paying personal expenses — mortgage, alimony, boat, car — from corporate accounts.

Arguments: Sea-Land: Unity of interest plus injustice; pierce PS and reverse-pierce the siblings. Marchese: An unpaid judgment is not "fraud or injustice."

Holding: The Van Dorn test requires (1) such unity of interest and ownership that separate personalities no longer exist and (2) circumstances such that adherence to the fiction would sanction fraud or promote injustice. Unity was satisfied; but it is not enough that Sea-Land would be denied a judicially imposed recovery — something more, such as unjust enrichment, must be shown.

Disposition: Summary judgment reversed and remanded on the second prong.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from judgment for the shareholder after a stipulated-facts trial.

Facts: In 1984 Polan formed Industrial Realty and Polan Industries. Industrial had no capital, no records, and no formalities, and took a sublease from Kinney; Polan was its sole shareholder.

Arguments: Kinney: Unity of interest and an inequitable result. Polan: Kinney could have required my signature, a surety, or a credit check.

Holding: West Virginia applies a two-prong test (unity of interest and ownership; inequitable result) with an optional third prong asking whether the creditor could have protected itself. The court declines to apply the third prong here and pierces, noting that this approach fixes responsibility on the responsible party and produces an equitable result.

Disposition: Reversed and remanded with instructions to enter judgment for the plaintiff.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from summary judgment dismissing the individual shareholders.

Facts: In 1982 Roland McBride — uninsured and apparently judgment-proof — crossed the center line and struck the Baatzes on their motorcycle. They alleged Arrow Bar served him beforehand. The Neuroths personally guaranteed a $50,000 loan used as capital and held the corporation out as a corporation.

Arguments: Baatz: Undercapitalization and a personal guaranty justify piercing. Neuroths: The corporation observed its formalities and was held out as such.

Holding: The facts did not establish grounds to disregard the corporate entity; the dismissed individuals were not shown to be personally liable as sellers or otherwise. A dissent stresses undercapitalization and the president's admission that they incorporated "as a shield against individual liability."

Disposition: Summary judgment for the individual defendants affirmed.

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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?

Full brief — facts, arguments, holding, disposition

Posture: C.F. Inc.'s exception to the refusal to direct a verdict, after a substantial verdict for My Bread on conversion.

Facts: In August 1960 Byron Haseotes — secretary, treasurer, and stockholder of C.F. Inc., of each codefendant, and of fifteen other corporations — arranged for My Bread's products to be sold in "Cumberland Farms" dairy stores; My Bread supplied bakery racks. When the arrangement ended in September 1963, local store managers acting on Haseotes's instructions prevented recovery of the racks. Title never left My Bread. Stock in C.F. Inc. and each codefendant was held by Haseotes and his family.

Arguments: My Bread: Common control and intermingled operations make C.F. Inc. responsible. C.F. Inc.: We own no stock in the codefendants and never possessed the racks.

Holding: The Massachusetts standard: disregard the separate entities where there is common control plus a fraudulent or injurious consequence, or confused intermingling of activity among corporations in a common enterprise with substantial disregard of separate identities. The jury could find the store companies acted as C.F. Inc.'s agents in following Haseotes's orders, making C.F. Inc. liable for the conversions.

Disposition: A directed verdict was properly refused — verdict against C.F. Inc. stands.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from summary judgment for Westin and dismissal of Westin Mexico for lack of personal jurisdiction.

Facts: John Gardemal drowned near Cabo San Lucas while attending a medical seminar at the Westin Regina. His widow sued Westin and Westin Mexico under Texas law. The evidence showed a shared trademark, shared operations manuals, and a shared reservation system.

Arguments: Gardemal: Alter ego and single business enterprise. Westin: An ordinary parent-subsidiary relationship.

Holding: Those facts show "a typical, working relationship between a parent and subsidiary." There was no evidence of blended identities and none that the plaintiff suffered harm or injustice from the separateness.

Disposition: Summary judgment for Westin affirmed; dismissal of Westin Mexico affirmed.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Multiple cross-motions for summary judgment in a salon renovation dispute.

Facts: Philip Alan (president Christine Perkins) contracted for renovation work. Sarcia issued the contract on letterhead purporting to be that of "MSarcia Construction Services, LLC" — but did not incorporate the business until close to ten months later. Philip Alan also sought to pierce to Nosal Builders, offering evidence of shared creditors and a joint Nosal-Sarcia operation but nothing tying Nosal Builders itself to Sarcia.

Arguments: Philip Alan: Reach the related builder, and hold Sarcia personally. Defendants: No corporate connection was shown; the contract was the LLC's.

Holding: Piercing requires evidence sufficient to show a reasonable expectation of proving the elements at trial, which was absent as to Nosal Builders. But an agent is personally bound where the corporate entity purportedly contracting did not exist at contract formation.

Disposition: Nosal Builders' motion on veil piercing ALLOWED; Sarcia held personally bound by the contract.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Direct appellate review of summary judgment for all defendants, plus the denial of the defendants' fee motions.

Facts: Wayne Scott, trustee, bought Salem property in January 2002 to build townhouses and found coal tar assumed to have migrated from the abutting Northey Street property. Salem Gas Light operated a gas works there from 1850 to 1890, then sold; the facility was dismantled by 1906. In 1926–27, North Boston Lighting Properties and New England Power Association — a corporate predecessor of NEES — began acquiring Salem Gas stock, some thirty-six years after the sale.

Arguments: Scott: NEES is liable as an operator under G.L. c. 21E, directly or through piercing. NEES: We acquired an interest decades after the contamination and the sale.

Holding: The parent is not directly liable as an operator, and there are no grounds to pierce: "control, even pervasive control, without more, is not a sufficient basis" to ignore corporate formalities — there must be an improper purpose and a connection between the injury and the improper conduct. The opinion collects the twelve factors and describes piercing as reserved for the "rare situation."

Disposition: Summary judgment for all defendants affirmed; the order denying litigation costs and attorney's fees vacated and remanded.

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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?

Full brief — facts, arguments, holding, disposition

Posture: Certiorari after the Court of Special Appeals reversed summary judgment for the asset purchaser.

Facts: Brandt bought a treadmill from Atlantic Fitness Products on January 31, 1981; it was made by American Tredex. On July 31, 1981 Nissen bought American Tredex's trade name, patents, inventory, and other assets, assuming some liabilities but expressly excluding liability for injuries from previously sold products. American Tredex continued for five years as "AT Corporation." Brandt was injured on October 18, 1986.

Arguments: Brandt: Continuity of enterprise should make Nissen answer. Nissen: Maryland recognizes only the four traditional exceptions, none of which applies.

Holding: Maryland declines to adopt the continuity of enterprise exception, which is inconsistent with fault-based tort liability; strict liability does not abandon the requirement of fault-based responsibility. No traditional exception was invoked or supported.

Disposition: Summary judgment for Nissen reinstated — the Circuit Court did not err.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Direct appellate review of a reported order directing sale, and a later conflicting order directing closure.

Facts: A receiver was appointed under G.L. c. 111, § 72R after the nursing home's owner disclaimed financial responsibility and residents were endangered. One judge ordered the home sold; another ordered it closed. Evidence addressed the increased risk of illness and death from involuntary transfers.

Arguments: Receiver/Commonwealth: The Act permits sale to preserve a viable facility. Owner: Contested the receiver's authority.

Holding: The court construes the receiver's authority under the Act — the case also supplying the "rare situation" formulation later quoted in veil-piercing decisions. Whether Union Square could and should be preserved could not be resolved on this record.

Disposition: Remanded to reconsider the conflicting orders; the judge may vacate either or both and enter a new order directing sale on appropriate terms, or reenter the closure order if a sale cannot be effected.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a decree dismissing the minority shareholder's bill after oral testimony.

Facts: Euphemia Donahue, widow of a longtime employee, was a minority stockholder in Rodd Electrotype. Harry Rodd — former director, officer, and controlling stockholder — had the corporation purchase his shares for $36,000 as part of a retirement and succession arrangement involving his sons Charles and Frederick. Donahue was offered nothing.

Arguments: Donahue: Rescind the purchase and make Harry repay the corporation; the directors breached their duty to me. Defendants: An ordinary corporate repurchase, properly authorized.

Holding: A close corporation is marked by (1) a small number of stockholders, (2) no ready market for the stock, and (3) substantial majority participation in management. Because it resembles a partnership, stockholders owe one another the same fiduciary duty partners owe — "utmost good faith and loyalty," stricter than the duty owed in a public corporation. When the corporation purchases shares from a controlling stockholder it must afford each stockholder an equal opportunity to sell a ratable number of shares on identical terms.

Disposition: Dismissal reversed — the minority is entitled to relief.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a decree after a master's report.

Facts: Wilkes, Quinn, Riche, and Pipkin agreed in 1951 to go into business together, incorporating Springside; each participated in management and drew a salary, and no dividends were paid. In 1967, after a falling-out, Wilkes's salary was terminated and he was voted out as officer and director.

Arguments: Wilkes: Salary and office were my entire return; this is a freeze-out. Majority: We are entitled to set business policy and to choose our officers.

Holding: The Donahue duty applies, but the controlling group "must have some room to maneuver." The court adopts a balancing test: the controlling group must demonstrate a legitimate business purpose; the minority may then show the objective could have been achieved through an alternative course less harmful to its interest; and the court weighs the two.

Disposition: Master's findings held warranted; remanded to the Probate Court for further proceedings, including damages measured by the salary Wilkes would have received.

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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.

Full brief — facts, arguments, holding, disposition

Posture: SJC review after the Appeals Court ruled for the plaintiff.

Facts: Merola, a vice president and minority stockholder, was terminated by Francesco Pompei, Exergen's president and majority stockholder. When Merola sold his shares back in 1991 he was paid $17 a share — the price paid to earlier selling shareholders — a price he concluded, after consulting his attorney, was fair, and which gave him a significant return on his capital independent of salary. There was no legitimate business purpose for the termination.

Arguments: Merola: No business purpose means a Wilkes breach. Pompei: I gained nothing, and no policy was violated.

Holding: This is not a situation where the majority breached the fiduciary duty. Although there was no legitimate business purpose, the termination was not for the majority's financial gain and not contrary to established public policy. Not every discharge of an at-will employee who happens to own stock in a close corporation gives rise to a successful claim.

Disposition: Judgment for the plaintiff reversed — the defendants prevail.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal by the majority shareholder from judgment for the minority.

Facts: Four brothers formed the Sugarman Brothers paper partnership in 1906; by 1918 it was owned equally by three. Leonard, son of Myer, later controlled the business; the plaintiffs are grandchildren of Samuel. Leonard paid himself excessive compensation, denied the minority meaningful participation, and offered to buy their shares at a low price.

Arguments: Minority: Classic freeze-out — drain the value, then buy cheap. Leonard: I run the company and am paid for running it.

Holding: Leonard breached his fiduciary duty to the minority shareholders in a close corporation; none of the alleged errors of fact or law warranted reversal of liability.

Disposition: Liability affirmed; remanded to recalculate the award — increasing the amount attributable to interest under the correct Massachusetts statute and deleting the attorney's fees.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Jury-waived trial — four weeks, 24 witnesses, 88 exhibits.

Facts: A family-run food distribution business supplying military commissaries. The son held 49%; father and daughter were aligned against him. He left and started a competing enterprise. The court had to decide whether he quit or was fired, whether he was frozen out of his 49%, whether any buy-sell or stock restriction agreement governed disposition of the stock, whether either side breached fiduciary duties, and whether either committed unfair or deceptive trade practices or intentional torts.

Arguments: Son: I was fired and frozen out. Father and daughter: He quit and then competed against us.

Holding: Extremely fact-bound, with the court describing "a number of very close legal calls." The court found conduct on the family's side — including in the spring of 2000 — that denied the son benefits of his ownership, alongside findings adverse to the son.

Disposition: Mixed judgment; the teaching value is the planning failure (no buy-sell agreement) rather than the outcome.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal after denial of the defendant's motion.

Facts: In December 1951 Dr. Louis Wolfson agreed to buy Norwood land for $350,000, offering quarter interests to Paul Smith, Abraham Zimble, and William Burke, each of whom paid $12,500. Smith, an attorney, organized Atlantic and — at Wolfson's request — included an 80% supermajority provision in the articles and by-laws, giving any one of the four a veto. Atlantic retained twenty-eight acres with about twenty aging mill structures needing expensive repairs. Wolfson used his veto to block dividends, and the corporation incurred IRS penalties for unreasonable accumulation of earnings.

Arguments: Wolfson: The money was needed for repairs and improvements. Others: His veto caused the penalty taxes.

Holding: The 80% provision made Wolfson, though a 25% holder, effectively the controlling shareholder for the decisions his veto reached, and the Donahue/Wilkes duties attached to him. His unreasonable exercise of the veto breached that duty.

Disposition: Liability imposed on Wolfson for the resulting penalties.

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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.

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:

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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from a decree dismissing the bill, on findings of fact with no report of the evidence.

Facts: In May 1926 Agassiz (president and director) and MacNaughton (director and general manager) bought 700 shares of Cliff Mining Company stock on the Boston exchange — shares the plaintiff had owned. They knew of a geologist's March 1926 written theory about possible copper deposits in the region, which the plaintiff did not. The plaintiff acted on his own judgment and made no inquiry of the defendants or other officers.

Arguments: Goodwin: Buying without disclosing that knowledge wronged me. Agassiz: The theory was unproven, the trade was impersonal, and our duty runs to the corporation.

Holding: Directors owe their fiduciary duty to the corporation, not to individual shareholders trading impersonally on an exchange; relief may be granted in appropriate instances on "special facts" (Strong v. Repide), but none appear here where the information was speculative and the seller made no inquiry.

Disposition: Decree dismissing the bill affirmed with costs.

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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?"

Full brief — facts, arguments, holding, disposition

Posture: SEC enforcement action under § 21(e); appeal from the S.D.N.Y.

Facts: Between November 12, 1963 and April 16, 1964, TGS officers, directors, and employees — Fogarty, Mollison, Darke, Murray, Huntington, O'Neill, Clayton, Crawford, and Coates — bought TGS stock or calls, personally or through agents, on the basis of drilling results at Timmins. The company also issued a press release characterized as discouraging.

Arguments: SEC: Disclose or abstain; the press release was misleading. Defendants: One drill hole is not material, and the news was public when some of us traded.

Holding: All transactions by individuals in possession of material inside information are prohibited unless the information is disclosed or the trader abstains. Materiality for a contingent event balances the indicated probability the event will occur against the anticipated magnitude in light of the totality of company activity. Information is not public until effectively disseminated and absorbed — Coates traded too soon. Corporate liability for a misleading press release turns on whether it was misleading to reasonable investors.

Disposition: Liability established as to the trading defendants; remanded for further consideration of the press release issue.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Certiorari from affirmance of convictions under § 10(b)/Rule 10b-5, the mail and wire fraud statutes, and § 371.

Facts: R. Foster Winans, a Wall Street Journal reporter and co-author of the daily "Heard on the Street" column, secretly supplied the timing and content of upcoming columns to broker Kenneth Felis; his roommate David Carpenter was convicted of aiding and abetting. The columns contained no corporate inside information; their value lay in the column's perceived quality and its capacity to move prices. Brant and Felis denied knowing anyone at the Journal and took steps to conceal the scheme.

Arguments: Petitioners: Schedule information isn't corporate inside information, and the Journal lost no money. Government: The Journal's confidential business information is its property.

Holding: The Journal's confidential business information is property for purposes of the mail and wire fraud statutes, and the scheme deprived it of that property. On the § 10(b) counts the Court divided 4–4, leaving the misappropriation theory unresolved.

Disposition: Mail and wire fraud convictions affirmed; securities convictions affirmed by an equally divided Court.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Appeal from convictions under Rule 10b-5, Rule 14e-3(a), mail fraud, and perjury.

Facts: Chestman, a stockbroker, had handled Waldbaum stock for Keith Loeb since 1982, knowing Loeb's wife was a granddaughter of director Julia Waldbaum. On November 21, 1986, Ira Waldbaum agreed to sell the company to A&P at $50 a share, told three of his children and his sister Shirley Witkin, and admonished them to keep it quiet. The information reached Loeb through his wife, and Loeb told Chestman, who traded.

Arguments: Government: Misappropriation from a family relationship of trust. Chestman: I owed no fiduciary duty to anyone.

Holding: Rule 10b-5 misappropriation liability requires a fiduciary relationship or its functional equivalent; marriage and kinship alone, and a history of confidential disclosures without more, do not create one. But Rule 14e-3(a) is a valid exercise of the SEC's § 14(e) rulemaking authority and prohibits trading on undisclosed tender offer information without any breach of duty.

Disposition: Rule 10b-5 and mail fraud convictions reversed; Rule 14e-3(a) convictions affirmed; the panel's reversal of the perjury conviction left intact. Resentencing unnecessary because the sentences ran concurrently.

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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).

Full brief — facts, arguments, holding, disposition

Posture: Certiorari after the Eighth Circuit reversed convictions on all counts.

Facts: O'Hagan was a partner at Dorsey & Whitney, which represented Grand Met in its confidential plan to make a tender offer for Pillsbury. He did no work on the representation. He bought Pillsbury call options and profited substantially.

Arguments: O'Hagan: I owed no duty to Pillsbury or its shareholders, so there was no deception on anyone I traded with. Government: The fraud was on the source of the information.

Holding: The misappropriation theory is a valid basis for § 10(b) liability: a person who trades on confidential information misappropriated in breach of a duty owed to the source commits deception "in connection with the purchase or sale of a security," because full disclosure to the source would defeat the scheme. Rule 14e-3(a) is within the SEC's § 14(e) authority even though it dispenses with a breach-of-duty element.

Disposition: Court of Appeals judgment reversed on the securities counts and on the mail fraud counts; remanded for consideration of O'Hagan's remaining arguments. It is so ordered.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Motions to dismiss an SEC civil enforcement complaint premised on the misappropriation theory.

Facts: McGee learned of a pending acquisition from a fellow Alcoholics Anonymous member whom he had sponsored and with whom he had shared confidences for years, then traded and tipped Michael Zirinsky, who traded and tipped others. Robert Zirinsky and several family members were named; four were sued as relief defendants holding the profits.

Arguments: McGee: The complaint fails to allege a relationship of trust and confidence, and the SEC exceeded its authority in defining that relationship in Rule 10b5-2. Relief defendants: We have a legitimate interest in our own profits.

Holding: The complaint sufficiently alleges a duty arising from a history and pattern of sharing confidences; the relationship need not be commercial or familial. The relief defendants were adequately alleged to have been unjustly enriched by trading on misappropriated information. But the allegations against Robert Zirinsky do not support a plausible inference of scienter.

Disposition: Motions to dismiss by McGee, Michael Zirinsky, and the relief defendants DENIED; Robert Zirinsky's motion GRANTED with leave to amend as to him.

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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.

Full brief — facts, arguments, holding, disposition

Posture: Two motions to dismiss under Rules 9(b) and 12(b)(6).

Facts: Doddi, a bank financial analyst, tipped her romantic partner Spivak, a day trader, about a confidential pending acquisition of a bank client. Spivak bought shares of the target in his own accounts and in his now-deceased mother's account, realizing $222,357 in profits.

Arguments: Spivak: Under Newman, absent an objective pecuniary benefit to Doddi there is no breach and no derivative tippee liability; and his mother directed her own trades. SEC: A gift of confidential information to a romantic partner is itself the personal benefit.

Holding: Under Dirks and First Circuit precedent (Rocklage, Sargent), the benefit need not be pecuniary or tangible — "the mere giving of a gift to a relative or friend is a sufficient personal benefit," and the complaint alleges Doddi conferred a gift upon a romantic partner. Newman's narrower standard does not control. The claim that his mother directed her own purchases is a factual denial unsuitable for resolution on a motion to dismiss.

Disposition: Motions to dismiss DENIED.

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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.

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.

Jurisdictional splits — do not flatten these either

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.

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

For entity cases, swap the first three fields:

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.

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.

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?