This is an example of what an ACL exam can look like. In 2023, 2024 was the first year that an exam had to be taken on location instead of a take home exam. This is an example of a take home and it looked very much like the exam on location, too. So good to see what you can expect.
Question One:
50 points: 2500 word limit
Told-Ya, Inc (“TYI”) is a large, publicly-held company with one class of shares
outstanding, 140 million of them to be exact. TYI has developed a computer app to
send bouncy e-mail messages and texts to friends and family when exciting things
happen to the user of the app, or even to send rude e-mail messages or texts to
unfriends and not-family. TYI’s unique offering is its own single-purpose,
inexpensive smart phone to load the app and keep it ready to go with blasts to
designated audiences, with special features to ensure that happy messages don’t go to
unfriends and rude messages don’t go to family. TYI is incorporated pursuant to the
Delaware General Corporate Law, DGCL, and with its headquarters in Wilmington,
Delaware. Its production facilities for the phones are on the shores of the Chesapeake
Bay, close to Wilmington.
The CEO of TYI, Elan Minsk, owns 18.4% of the stock, and bet he is on the seven
person board of directors—in fact, he is its Chair. Six other members of the board
include one other employee of TYI, Celine Dylan, an accountant who is chief
financial officer (CFO); and five outside directors: Elan’s wife, Mary Minsk; Elan’s
brother, Jeff Minsk, an accountant; Paul Purdy, President of the University of
Delaware, which is a “feeder school” of employees for TYI and which has received
generous donations from TYI for its computer sciences department; Jamelle Sharpe, a
lawyer and antitrust specialist; and Nicola Santus, also a lawyer and environmental
law specialist. Neither Jamelle nor Nicola has done work for TYI, but both would be
quite interested in doing work for TYI in the future.
At a regularly scheduled board meeting in April, 2018, two particularly important
items were on the agenda. First, there was a proposal from management to sell $700
million worth of bonds to fund a share repurchase program, seeking to repurchase 40
million shares from TYI’s shareholders. The effect of such a repurchase would be to
reduce the number of shares outstanding, and thus “fatten dividends and goose the
company’s lagging share price,” as the transaction was later described in the
Wilmington, Delaware daily newspaper, the Globe and Mail. During the board
meeting, Celine Dylan, the CFO, distributed an analysis that showed the financial
implications of the borrowing, and the proposal was discussed for close to an hour.
Among the issues discussed was a concern expressed by Paul Purdy, and agreed to by
Nicola Santus, that there may be better ways to use such a large sum of money, such
as by hiring more employees and expanding the creative capacity of the firm, thus
also expanding the firm’s product offerings. Celine Dylan responded to this concern
by emphasizing that the company was in the line of sight of some particularly
aggressive shareholder activists, so that loading up the company with debt while at the
same time sweetening dividends for the shareholders was conceived as a strong
measure to take to defend against an activist attack. When a question was raised
about what the activists’ wanted from TYI, Elan Minsk answered that the activists
wanted to put three people on the TYI board, and discontinue its research into new
apps. The board as a whole agreed that selling the bonds and distributing the proceeds
was an important strategy to keep the activists quiet, given that context, and agreed to
the bond offering and share repurchase.
, The second issue that was discussed was a recent toxic spill into the Chesapeake Bay
at TYI’s facilities. TYI’s Chief Environmental Officer, William Valdez, had reported
the spill to TYI and the board’s Compliance and Audit Committee one week ago.
Elan Minsk led this discussion with the board, with a number of potential aspects to
be decided. Options the board discussed included (1) TYI admitting the spill, offering
to clean it up and to compensate local community residents (expending $35 million in
the process), even though no statute or regulation required such affirmative disclosure
to the community; or (2) TYI keeping quiet but changing its production process so
that future spills were unlikely to occur, which would cost about $10 million; or (3)
doing both disclosure and changing production processes, which would cost about
$45 million. After a vigorous discussion that also lasted about an hour, TYI’s board
decided to stay quiet, change their production process, and hope for the best in the
future. The views of Jamelle Sharpe were instrumental in that discussion, although at
least one board member, Nicola Santus, suggested that the board needed to hear from
TYI’s Chief Environmental Officer before making the decision, which suggestion was
not taken up by the rest of the board.
Unfortunately, hoping for the best in the future is often a poor business strategy,
reminding this author of something an esteemed Cravath lawyer, Tom Barr, used to
say, “Bad lawyers hope for the best; good lawyers plan for the worst.” Residents
near the TYI production facility soon began to show clusters of odd ailments, the
water was tested, and the tests showed that concentrations of toxins were much higher
than allowed by relevant environmental statutes. It was not hard to find the source of
the toxins, TYI, and fines and penalties and sustained publicity about TYI as a terrible
corporate citizen soon followed. When it became clear that at the same time that TYI
decided to raise $700 million to reward its shareholders it was unwilling to spend $35
million, or 5% of its capital raise, to protect citizens from the toxic spill, the publicity
was terrible. What soon followed were protesters with pickets at the front door on a
daily basis, deeply troubled employees, and a 30% drop in the TYI share price.
1. 40 points
What claims can unhappy shareholders of TYI bring against the TYI board of
directors based on these facts? Analyze those claims, including (of course) whatever
defenses the directors have as well, and how the plaintiffs might respond to the
directors’ defenses. What result would you anticipate on each claim? Please be as
specific as possible in your analyses.
1. 10 points
Assume that an unhappy shareholder of TYI wants to propose a shareholder
resolution seeking to ensure that TYI’s board takes environmental concerns more
seriously than it did in this instance. Draft the shareholder’s resolution, using the
strongest language permissible, and defend it against claims of potential exclusion by
the company. What is the most likely route for the company to argue to exclude the
proposal, and what is your strongest argument in response? What do you expect the
outcome to be?
Question Two:
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