Essay playbook
The Greenline Ventures Breakup
Work through The Greenline Ventures Breakup as a public essay playbook with a fresh UBE / MEE-style fact pattern, scored issues, and a model answer.
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Fact pattern
Greenline Ventures, Inc. is a small corporation with three shareholders who are also its only directors: Priya (60%, and CEO), Quinn (20%), and Raj (20%). At a board meeting Priya attended, the board resolved that no officer could sign a contract worth more than $50,000 without board approval, so Priya knew of the limit. Without seeking approval, she signed a $200,000 supply contract with Vendor Corp on Greenline's behalf. Vendor Corp did not know about the $50,000 limit; it knew only that Priya was Greenline's CEO. Before the board adopted that cap, Vendor had itself supplied Greenline twice on comparable six-figure contracts that Priya signed, and Greenline performed and paid on both. The cap was still in force when Priya signed the disputed contract, and Greenline never told Vendor about it. Greenline never held the annual meetings its bylaws required and kept no minutes. Priya alone ran day-to-day operations and signed every corporate check, and over two years she paid roughly $180,000 of her personal credit-card bills straight out of the corporate account - without board approval, without any corporate purpose or reimbursement obligation, and never recorded as compensation, a declared distribution, or a shareholder loan - money the company would otherwise have had available for its suppliers. Greenline was formed to run a wholesale-supply business everyone expected would require six-figure inventory purchases, yet its owners contributed only $5,000 in total capital and arranged no committed financing, credit facility, or other working capital (and carried no liability insurance); it now owes roughly $500,000. When Greenline could not pay Vendor Corp, Vendor sued Priya personally for the $200,000. Separately, Priya caused Greenline to buy a warehouse from Priya Holdings LLC — a company Priya wholly owns — for a price about 40% above market. She never told Quinn or Raj that she owned the seller; believing it was an ordinary arm's-length purchase, they voted to approve it. Finally, after studying an outside consultant's detailed report, Quinn and Raj approved a good-faith expansion into a new region. The expansion failed and cost Greenline $300,000. Quinn now wants to sue Priya on Greenline's behalf over the warehouse deal, but he has not made any demand on the board. Assume the jurisdiction follows the RMBCA unless otherwise stated. Discuss: (1) whether Greenline is bound to Vendor on the supply contract; (2) whether Vendor can reach Priya personally; (3) what claims Greenline has against Priya arising from the warehouse purchase and the personal-expense payments; (4) whether Quinn and Raj are liable for the failed expansion; and (5) what Quinn must do before suing on Greenline's behalf.
Scored issues to spot
Even though Priya lacked ACTUAL authority (the $50,000 cap), Greenline is bound by APPARENT authority: the corporation held her out as CEO and, in prior dealings with Vendor itself, let her sign comparable six-figure contracts that Greenline then performed and paid - manifestations traceable to the principal and known to Vendor - so Vendor reasonably believed she was authorized. An internal limit Vendor never knew about does not defeat that reasonable belief. Greenline is bound to Vendor; it may pursue INTERNAL remedies against Priya for exceeding her actual authority, though damages would require proof of loss caused by the violation - the contract itself may have been commercially reasonable.
Subject: Agency | Points: 20
Vendor has a strong argument to pierce the veil and hold Priya personally liable, though the result is not assured. The factors and terminology vary by jurisdiction, but the core is (1) such domination that the corporation is Priya's ALTER EGO - ignored formalities (no required annual meetings, no minutes), COMMINGLED funds (personal bills from the corporate account), and inadequate capitalization judged AT FORMATION ($5,000 and no committed financing, credit facility, or other working capital, against foreseeable six-figure inventory purchases; the missing liability insurance carries little weight for a contract creditor like Vendor) - and (2) that respecting the separate entity would sanction fraud or INJUSTICE. The injustice here is the diversion of corporate funds and the abuse of the entity by Priya, not merely an unpaid debt to Vendor - an unpaid contract debt without additional abuse or inequity is generally insufficient, and piercing stays an EXCEPTIONAL, jurisdiction-dependent remedy. The strongest facts are her sole control of operations and checks plus the $180,000 withdrawn for personal use, which shows the abuse contributed to the inability to pay creditors such as Vendor; piercing is most common against a dominant shareholder of a closely held corporation. The counterargument is real: Quinn and Raj vote independently and imposed the cap in the first place, which cuts against complete domination, and missed annual meetings carry far less weight than the commingling and siphoning - so treat this as a strong but uncertain case.
Subject: Business Associations | Points: 20
Priya is BOTH an interested director/officer AND a 60% CONTROLLING SHAREHOLDER, and she caused the corporation to buy her own property - classic self-dealing that triggers the duty of loyalty. Under the RMBCA interested-director framework (the majority rule to apply unless the question signals otherwise), a conflicting-interest transaction is not enjoinable or damages-awardable solely because of the conflict IF the material facts were disclosed and it was approved by qualified (disinterested) directors, OR disclosed and approved by qualified shareholders, OR it was FAIR to the corporation when entered into. (Delaware analyzes controlling-shareholder transactions under a separate ENTIRE FAIRNESS standard of review - fair dealing plus fair price - so keep that terminology with the Delaware framework rather than blending it into the RMBCA analysis.) Priya disclosed nothing, so neither approval route is available and she bears the burden of proving the transaction was FAIR TO GREENLINE when it was entered into - which the ~40%-above-market price and her concealment defeat. The corporation may rescind or recover damages. SEPARATELY, paying roughly $180,000 of personal credit-card bills out of the corporate account is its own duty-of-loyalty breach - misappropriation of corporate funds, not merely evidence for veil-piercing - and Greenline may seek restitution or disgorgement of those funds regardless of how the warehouse purchase is resolved.
Subject: Business Associations | Points: 20
The failed expansion implicates the duty of CARE. The business judgment rule presumes directors acted on an INFORMED basis, in good faith, and in the honest belief the action served the corporation; it is rebutted only by an uninformed or irrational decision, bad faith, or a conflict (some courts phrase a grossly deficient PROCESS as "gross negligence"). Quinn and Raj studied a detailed outside consultant report and had no conflict; that detailed report supports finding an INFORMED process (reliance on an outside expert is protected when the directors reasonably believe the expert is competent in the matter). A bad OUTCOME is not a breach - they are NOT liable.
Subject: Business Associations | Points: 20
A suit to recover FOR the corporation is a DERIVATIVE action: Quinn must be a contemporaneous shareholder who fairly represents the corporation. Under the modern (RMBCA) UNIVERSAL-DEMAND rule, he must make a written pre-suit DEMAND on the board in EVERY case - futility is not an alternative - and then wait 90 days unless the board rejects the demand earlier or waiting would cause irreparable injury. His suit is premature because he made no demand. (Delaware instead excuses demand that would be futile, under a director-by-director test; apply the universal-demand rule unless the question signals Delaware law.)
Subject: Business Associations | Points: 20
Model answer
**1. APPARENT AUTHORITY (Agency)** Greenline is bound to the Vendor contract. Priya lacked ACTUAL authority because the board capped officer contracts at $50,000. But a principal is bound by an agent's APPARENT authority when the principal's own manifestations lead a third party to reasonably believe the agent is authorized. Greenline held Priya out as its CEO, and Vendor had twice seen Priya sign comparable six-figure contracts that GREENLINE THEN PERFORMED AND PAID - so it was the corporation's own conduct, not merely the agent's, that reasonably indicated Priya held that authority. An internal limit the third party never knew about does not defeat that reasonable belief. Greenline is bound; its recourse runs against PRIYA internally, not against Vendor - though it must prove a loss caused by her exceeding the cap.
**2. PIERCING THE CORPORATE VEIL** Vendor has a strong argument to reach Priya personally, though standards vary by jurisdiction. Shareholders are normally shielded, but courts pierce where (1) the shareholder so dominated the corporation that it was her ALTER EGO and (2) respecting the separate entity would sanction fraud or injustice. The factors vary by jurisdiction, but the classic ones are present: disregard of formalities (no required annual meetings, no minutes), COMMINGLING (roughly $180,000 of personal bills paid from the corporate account by the sole operator and check-signer), and inadequate capitalization judged AT FORMATION ($5,000 and no committed financing, credit facility, or other working capital, against foreseeable six-figure inventory purchases; the absent liability insurance adds little for a contract creditor). The diversion also contributed to the inability to pay Vendor, because those funds would otherwise have been available for suppliers. The required injustice is the diversion and abuse of the corporate form - not merely the fact of an unpaid debt. Piercing is most common against a dominant shareholder of a closely held corporation, as here. The counterargument is real: Quinn and Raj vote independently and imposed the cap in the first place, which cuts against complete domination, and missed annual meetings carry far less weight than the commingling and siphoning - so treat this as a strong but uncertain case.
**3. DUTY OF LOYALTY - CONTROLLING-SHAREHOLDER SELF-DEALING** Priya is both an interested director/officer AND a 60% CONTROLLING SHAREHOLDER who caused the corporation to buy her own property - self-dealing that triggers the duty of loyalty. A conflicted transaction is cleansed only if (a) the material facts were disclosed and it was approved by disinterested directors, (b) disclosed and approved by disinterested (minority) shareholders, or (c) proven FAIR to the corporation when entered into. Priya disclosed nothing, so neither approval route is available and she bears the burden of proving that fairness. The ~40%-above-market price plus concealment defeats that showing; the corporation may rescind or recover damages. SEPARATELY, paying roughly $180,000 of personal credit-card bills out of the corporate account is its own loyalty breach - misappropriation of corporate funds, not merely evidence for veil-piercing - and Greenline may seek restitution or disgorgement of those funds regardless of how the warehouse purchase is resolved.
**4. BUSINESS JUDGMENT RULE - DUTY OF CARE** Quinn and Raj are protected on the failed expansion. The business judgment rule presumes directors made an INFORMED decision, in good faith, honestly believing it served the corporation; it is rebutted only by an uninformed or irrational decision, bad faith, or a conflict (some courts describe a grossly deficient decision-making PROCESS as gross negligence). They studied a detailed outside consultant report and had no conflict, which supports an informed process; reliance on an outside expert is protected when directors reasonably believe the expert is competent in the matter. Directors are not insurers; a poor OUTCOME alone is not a breach. They are not liable.
**5. DERIVATIVE SUIT - DEMAND REQUIREMENT** Quinn's claim against Priya belongs to the CORPORATION, so it is a DERIVATIVE suit. He must be a contemporaneous shareholder who will fairly and adequately represent the corporation. Under the modern RMBCA UNIVERSAL-DEMAND rule, he must make a written pre-suit DEMAND on the board in every case (futility is not an alternative) and then wait 90 days unless the board rejects it sooner or waiting would cause irreparable injury. His suit is premature because he made no demand. (Delaware instead excuses demand that would be futile, under a director-by-director test; apply the universal-demand rule unless the question signals Delaware law.) Quinn must demand first.