breach of fiduciary duty

In 1986 and 1988, the Colorado Springs-Stetson Hills Public Building Authority issued a total of $26 million in bonds to finance public improvements at Stetson Hills, a planned residential and commercial development in Colorado Springs. Petitioner Central Bank of Denver served as indenture trustee for the bond issues. The bonds were secured by landowner assessment liens covering about 250 acres for the 1986 issue and 272 acres for the 1988 issue. The bond covenants required that the land subject to the liens be worth at least 160% of the bonds' outstanding principal and interest, and AmWest Development, the developer, was to provide Central Bank with annual reports containing evidence that this test was met. In January 1988, AmWest provided Central Bank with an updated appraisal of the land securing the 1986 bonds and proposed for the 1988 bonds, showing values almost unchanged from 1986. A senior underwriter for the 1986 bonds soon expressed concern that declining property values in Colorado Springs meant the 160% test might not be met, given the appraisal was over 16 months old. Central Bank asked its in-house appraiser to review the 1988 appraisal, who found the values optimistic and suggested retaining an outside appraiser for an independent review. After an exchange of letters with AmWest in early 1988, Central Bank agreed to delay the independent review until the end of the year, six months after the June 1988 closing on the bond issue. Before the review was complete, the Authority defaulted on the 1988 bonds. Respondents First Interstate Bank of Denver and Jack K. Naber, who had purchased $2.1 million of the 1988 bonds, sued the Authority, underwriters, an AmWest director, and Central Bank for violations of § 10(b) of the Securities Exchange Act of 1934, alleging Central Bank was secondarily liable for aiding and abetting the fraud. The United States District Court for the District of Colorado granted summary judgment to Central Bank. The United States Court of Appeals for the Tenth Circuit reversed, finding genuine issues of material fact on recklessness and substantial assistance. The Supreme Court granted certiorari to resolve the question of aiding and abetting liability under § 10(b).

On May 22, 1974, appellee Heitner, a nonresident of Delaware who owned one share of stock in the Greyhound Corporation, filed a shareholder's derivative suit in the Court of Chancery for New Castle County, Delaware. The complaint named as defendants Greyhound Corporation, its wholly owned subsidiary Greyhound Lines, Inc., and twenty-eight present or former officers and directors of one or both corporations. Heitner alleged that the individual defendants had violated their fiduciary duties by causing the corporations to engage in activities that resulted in a private antitrust judgment of over thirteen million dollars and a criminal contempt fine of six hundred thousand dollars, both arising from events in Oregon. The individual defendants resided primarily in Arizona and conducted their business there. Simultaneously with the complaint, Heitner filed a motion for sequestration of the Delaware property of the individual defendants pursuant to Del. Code Ann., Tit. 10, § 366. The Court of Chancery granted the motion the same day and appointed a sequestrator who seized approximately eighty-two thousand shares of Greyhound common stock belonging to nineteen defendants, along with options belonging to two others and certain debentures, warrants, and stock unit credits. The stock certificates were not physically present in Delaware, but Del. Code Ann., Tit. 8, § 169 deemed the situs of ownership of all stock in Delaware corporations to be in the state, allowing the sequestrator to place stop-transfer orders on the corporation's books. The value of the sequestered stock was approximately one point two million dollars. All twenty-eight defendants received notice of the suit by certified mail to their last known addresses and by publication in a New Castle County newspaper. The twenty-one defendants whose property had been seized entered special appearances and moved to quash service of process and vacate the sequestration order. They argued that the ex parte sequestration procedure violated due process and that they lacked sufficient contacts with Delaware to sustain jurisdiction. The Court of Chancery rejected these arguments in a letter opinion, and the Delaware Supreme Court affirmed the judgment in Greyhound Corp. v. Heitner, 361 A. 2d 225 (1976). The United States Supreme Court noted probable jurisdiction and heard argument on February 22, 1977. The individual defendants whose property was seized became the appellants before the Court. Greyhound Corporation and its subsidiary appeared in the action and moved to dismiss on the ground that the sequestration statute was unconstitutional. The sequestration order remained in effect pending resolution of the constitutional questions presented.

In 1936 Santa Fe Industries, Inc. acquired control of 60 percent of the stock of Kirby Lumber Corp., a Delaware corporation. Through a series of purchases between 1968 and 1973 Santa Fe raised its ownership to 95 percent at prices ranging from $65 to $92.50 per share. In 1974 Santa Fe decided to obtain 100 percent ownership. It invoked Delaware's short-form merger statute. The statute allows a parent owning at least 90 percent of a subsidiary to merge upon board approval and pay cash to the remaining shareholders without their consent or advance notice. Santa Fe obtained independent appraisals valuing Kirby's physical assets at $320 million, or $640 per share. It retained Morgan Stanley & Co. to appraise the stock. Morgan Stanley valued the shares at $125 each. Santa Fe offered the minority $150 per share. The merger became effective on July 31, 1974. The minority received notice within ten days together with an information statement containing the asset appraisals, Morgan Stanley's valuation, and other financial data. The information statement advised minority shareholders of their statutory right to petition the Delaware Court of Chancery for an appraisal of fair value. Respondents, minority stockholders of Kirby, filed a petition for appraisal on August 21, 1974. They withdrew it on September 9. The next day they commenced this federal action on behalf of the corporation and other minority shareholders. The amended complaint alleged that Kirby stock was worth at least $772 per share based on the pro rata value of physical assets. It alleged that the merger lacked any justifiable business purpose. It alleged that the merger occurred without prior notice. It alleged that Santa Fe obtained a fraudulent appraisal from Morgan Stanley to lull minority shareholders into accepting an inadequate price. The complaint asserted that this conduct violated Rule 10b-5 by employing a device, scheme, or artifice to defraud and by engaging in an act or practice that operated as a fraud or deceit in connection with the purchase or sale of securities. The District Court for the Southern District of New York dismissed the complaint for failure to state a claim. The Court of Appeals for the Second Circuit reversed. The Supreme Court granted certiorari.

Petitioners, who were stockholders in the Lehman Corporation, a closed-end investment company, brought a derivative action in federal district court against the corporation's directors and its brokers, Lehman Brothers. They alleged that Lehman Brothers had obtained control through an illegally large representation on the board in violation of the Investment Company Act of 1940 and used that control to extract excessive brokerage fees from the corporation. The complaint charged the directors with converting corporate assets and with gross abuse of trust, gross misconduct, willful misfeasance, bad faith, and gross negligence. It also accused both the directors and Lehman Brothers of breaching fiduciary duties, committing waste and spoliation, and violating the brokerage contract. Petitioners requested that the defendants account for and pay to the corporation their profits and gains and its losses. They demanded a jury trial on the corporation’s claims. The district court denied the motion to strike the jury demand in part. It held that only the shareholder’s initial claim to speak for the corporation would be tried to the judge while the corporation’s underlying claims would be tried to a jury if the corporation itself had brought suit. Finding substantial grounds for difference of opinion, the district court certified the question for interlocutory appeal under 28 U.S.C. § 1292(b). The Court of Appeals for the Second Circuit reversed, holding that a derivative action is entirely equitable in nature and that no jury is available to try any part of it. Because of the conflict among the circuits, the Supreme Court granted certiorari.

Citizens United is a nonprofit corporation with an annual budget of about $12 million. Most of its funds come from donations by individuals, though it accepts a small portion from for-profit corporations. In January 2008, Citizens United released a 90-minute documentary film entitled Hillary: The Movie. The film mentions Senator Hillary Clinton by name and depicts interviews with political commentators, most of them critical of her. Hillary was released in theaters and on DVD, but Citizens United wanted to increase distribution by making the film available through video-on-demand. In December 2007, a cable company offered to make Hillary available on a video-on-demand channel called Elections '08 for a payment of $1.2 million. The proposal was to make the film available to viewers free of charge. To promote the video-on-demand offering, Citizens United produced two 10-second ads and one 30-second ad. Each ad includes a short statement about Senator Clinton followed by the name of the movie and the movie's website address. Citizens United desired to promote the offering by running the advertisements on broadcast and cable television within 30 days of primary elections. Before the Bipartisan Campaign Reform Act of 2002, federal law prohibited corporations from using general treasury funds to make independent expenditures that expressly advocate the election or defeat of a candidate in connection with certain federal elections. BCRA §203 amended the law to prohibit any electioneering communication. An electioneering communication is any broadcast, cable, or satellite communication that refers to a clearly identified candidate for federal office and is made within 30 days of a primary or 60 days of a general election when publicly distributed so that it can be received by 50,000 or more persons in a relevant state. Concerned about possible civil and criminal penalties for violating 2 U.S.C. §441b, Citizens United filed suit in the United States District Court for the District of Columbia in December 2007. It sought declaratory and injunctive relief, arguing that §441b is unconstitutional as applied to Hillary and that BCRA's disclaimer, disclosure, and reporting requirements are unconstitutional as applied to Hillary and the ads. The District Court denied Citizens United's motion for a preliminary injunction and granted the Federal Election Commission's motion for summary judgment. The Supreme Court noted probable jurisdiction. The case was reargued after the Court requested supplemental briefs addressing whether Austin v. Michigan Chamber of Commerce and the relevant portion of McConnell v. Federal Election Commission should be overruled.