Burdens of Proof in Corporate Law

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3 Responses

  1. Andrew Lund says:

    Darian,

    I completely agree with you re: burdens. When I teach interested controlling shareholder transactions, I ask why boards go through the hassle of getting a disinterested shareholder vote if fairness is still the test. It’s not because doing so shifts the burden of proof back to the plaintiffs, but rather because doing so matters for the substance of the fairness analysis itself.

    I think you’re right to be skeptical that there are many fiduciary duty cases where the evidence is in equipoise, but I’m not sure it has anything to do with the expert judge/inexpert jury distinction. I wonder if much of it turns on the heightened incentives for defendants to produce evidence at early stages of the proceedings to win a demand motion or another species of the motion to dismiss. I suspect that there’s simply a fuller record at an earlier point in shareholder litigation than in other civil litigation, lessening the chance of any question really being a flip of the coin.

    As to why the courts talk about burdens so much … maybe we’re all just trained to think burdens matter?

    Andrew

  2. Darian Ibrahim says:

    Thanks Andrew. Glad to hear I’m not imagining things. Am enjoying your blogging on Delaware law over at the Glom!

  3. 1L says:

    With all the expertise of my first few weeks of corporations, Andrew’s explanation seems pretty plausible.

    A case from N.Y.–Lewis v. S.L.&E–is an exception, it seems, that illustrates the general point. The defendants, directors of corporation A and and corporation B (and B’s sole shareholders), had directed corporation A to lease its sole asset, some real estate in upstate New York, to corporation B for use in its tire sales business. It was a small family affair, where the other shareholders of A initiated a derivative suit, alleging that the directors had lowered A’s value by leasing at below market rates for a decade. At trial, the judge held that the burden of proof was on the plaintiffs and found that they hadn’t shown that A could have obtained a higher lease price. The appellate court overturned based on burden shifting and violation of the duty of loyalty. So, the burden was a big deal.

    But Lewis is about a family tire business. Multiply the amounts in play by 100 or 1000, and it seems pretty likely that one side would have established what the fair market rental value of the property had been.