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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

BENIHANA OF TOKYO, INC., individually and on behalf of Benihana, Inc., Plaintiff Below-Appellant, v. BENIHANA, INC., John E. Abdo, Norman Becker, Darwin Dornbush, Max Pine, Yoshihiro Sano, Joel Schwartz, Robert B. Sturges, Takanori Yoshimoto, and BFC Financial Corporation, Defendants Below-Appellees.

Section 144(a)(1) provides that when a board member's interest is disclosed to or is known by disinterested directors and a majority of the disinterested directors approve the challenged transaction, the board's decision to enter into the transaction will receive the benefit of the ยง144 safe harbor protection from challenges for voidness and voidability.

Benihana raises a couple of important issues. First, does the disclosure of the director's interest need to be accomplished formally? Or, is it sufficient that the director's interest be common knowledge to the disinterested directors? Second, to the extent a majority of disinterested directors approve the transaction does such an approval provide the interested director and the transaction any additional protection beyond merely protection against the transaction being deemed void or voidable? If a transaction is approved by a majority of disinterested directors who are fully informed about the transaction should that transaction get the protection of the business judgment presumption?