A shareholder sues alleging that Jimmy violated his fiduciary duty of loyalty.

Jimmy is the CEO of News Corp. His son, Johnny, runs Television Inc.  One day Jimmy suggests that Johnny sell Television Inc. to News Corp.   Jimmy and Johnny work together to radically inflate the value of Television Inc. Jimmy brings a proposal to the Board of Directors to buy Television Inc. for $500 million dollars even though the corporation is only worth $2 million.  The board of directors diligently examines the transaction, but due to clever forgeries, the board does not discover the radical inflation of the corporation.   Jimmy never discloses his relationship with Johnny.  The sale goes through, and it is shortly discovered that Television Inc., is practically worthless.

 

    • A shareholder sues alleging that Jimmy violated his fiduciary duty of loyalty.
    • Additionally, the shareholder claims that the directors violated their fiduciary duties of care.
    • Is the shareholder correct?
  • Assignment:  Read the case and apply the fiduciary duties of loyalty and care. Briefly discuss both duties.
  • Was Jimmy guilty of violating his duty of loyalty?  Why or Why not?
  • Were the directors guilty of violating their duty of care?  Why or Why not?