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Sports Everywhere Case

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INTRODUCTION
Sports Everywhere Corporation (“Sports Everywhere”) acquired Burger Palace after the Board of Directors unanimously approved the transaction. Upon learning of the acquisition, the Sports Everywhere shareholders plan to file a derivative lawsuit alleging that the directors breached their fiduciary duty to the corporation. Eugene Dallas (“Dallas”), Chairman of the Board of Directors, inquires whether the business judgment rule is applicable to the determination of the Board.
STATEMENT OF FACTS
Dallas is the Chairman of the Board of Directors of Sports Everywhere, a company that operates a small chain of gyms in and around Albany, New York, with revenue of two million dollars last year.
A few years ago, Dallas lent a small sum of money to his sister’s best friend to start Burger Palace, an upscale specialty hamburger restaurant that has yet to reach its potential, according to Dallas. …show more content…
The purchase was unanimously approved by all five directors of Sports Everywhere. The vote of the directors was based primarily on two things: (i) Dallas’ oral statement on why he thought the acquisition was smart, arguing that he expected the burger restaurant market in the area to grow and Sports Everywhere would have a competitive advantage, and (ii) a letter issued by Justin Banker from Hoya Bank, dated August 15, 2015. The letter contains the favorable opinion of Mr. Banker, while admitting that no analysis was performed on financial reports on his behalf.
One director did, in fact, visit Burger Palace and reviewed the company’s financial records and agreed with Dallas that it had a great deal of potential for success. Dallas disclosed to another one of the four directors that he was an investor of Burger Palace. None of the other directors are Burger Palace investors. The directors trusted the chairman’s recommendation, relying on his 20 years of experience running the

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