City of Coral Springs Police Officers' Pension Plan v. Dorsey

Dorsey nicely illustrates the joint operation of substantive standards of review and the demand futility test.

• Questions
  1. If the case had reached the merits, what would have been the standard of review applicable to (a) Dorsey and (b) the other directors? Would they have made it easy or hard to win for the plaintiff?
  2. Would the outcome of the case have changed if Dorsey had owned not around 50% but 1% or 80% of Block’s voting power? If the transaction had been a purchase not of Jay-Z’s business but of Dorsey’s other business or house or whatever?
  3. What if the transaction at issue had been a squeeze-out merger (infra Part III:Chapter 7), i.e., a transaction where Dorsey uses his voting power to convert other shareholders’ shares into cash such that Dorsey remains as the sole owner of Block?
  4. Based on your previous answers, would you be concerned about litigation risk (a) as a controlling stockholder doing whatever you want or (b) as an outside director who thinks you are doing your job?
  5. In light of the foregoing questions, do you think the demand futility test is appropriate, too strict, or too lenient?