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Derivative action developed in equity to enable shareholders to sue in the corporation's name where those in control of the company refused to assert a claim belonging to it. By its very nature the derivative action impinges on the managerial freedom of directors. The function of the business judgment rule is of paramount significance in the context of a derivative action.
Derivative action developed in equity to enable shareholders to sue in the corporation's name where those in control of the company refused to assert a claim belonging to it. By its very nature the derivative action impinges on the managerial freedom of directors. The function of the business judgment rule is of paramount significance in the context of a derivative action.
Derivative action developed in equity to enable shareholders to sue in the corporation's name where those in control of the company refused to assert a claim belonging to it. By its very nature the derivative action impinges on the managerial freedom of directors. The function of the business judgment rule is of paramount significance in the context of a derivative action.
"The business and affairs of a corporation organized under this chapter shall be managed by or under the direction of a board of directors except as may be otherwise provided in this chapter or in its certificate of incorporation."8 Del. C. 141(a) (Emphasis added).
Derivative action importance and it double nature.
The machinery of corporate democracy and the derivative suit are potent tools to redress the conduct of a torpid or unfaithful management. The derivative action developed in equity to enable shareholders to sue in the corporation's name where those in control of the company refused to assert a claim belonging to it. The nature of the action is two-fold. First, it is the equivalent of a suit by the shareholders to compel the corporation to sue. Second, it is a suit by the corporation, asserted by the shareholders on its behalf, against those liable to it.
By its very nature the derivative action impinges on the managerial freedom of directors. First to insure that a stockholder exhausts his intercorporate remedies, and then to provide a safeguard against strike suits. Thus, by promoting this form of alternate dispute resolution, rather than immediate recourse to litigation, the demand requirement is a recognition of the fundamental precept that directors manage the business and affairs of corporations.
Business judgment rule.
It is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.
The function of the business judgment rule is of paramount significance in the context of a derivative action.
First, its protections can only be claimed by disinterested directors whose conduct otherwise meets the tests of business judgment. Thus, if such director interest is present, and the transaction is not approved by a majority consisting of the disinterested directors, then the business judgment rule has no application whatever in determining demand futility. Second, to invoke the rule's protection directors have a duty to inform themselves, prior to making a business decision, of all material information reasonably available to them. Having become so informed, they must then act with requisite care in the discharge of their duties. Under the business judgment rule director liability is predicated upon concepts of gross negligence. However, it should be noted that the business judgment rule operates only in the context of director action. The rule emerging from these decisions is that where officers and directors are 2
under an influence which sterilizes their discretion, they cannot be considered proper persons to conduct litigation on behalf of the corporation. Thus, demand would be futile.
In determining demand futility the Court of Chancery in the proper exercise of its discretion must decide whether, under the particularized facts alleged, a reasonable doubt is created that: (1) the directors are disinterested and independent and (2) the challenged transaction was otherwise the product of a valid exercise of business judgment.
The Court of Chancery stated that "stock ownership alone, at least when it amounts to less than a majority, is not sufficient proof of domination or control.
Independent directors.
The requirement of director independence inheres in the conception and rationale of the business judgment rule. The presumption of propriety that flows from an exercise of business judgment is based in part on this unyielding precept. Independence means that a director's decision is based on the corporate merits of the subject before the board rather than extraneous considerations or influences. While directors may confer, debate, and resolve their differences through compromise, or by reasonable reliance upon the expertise of their colleagues and other qualified persons, the end result, nonetheless, must be that each director has brought his or her own informed business judgment to bear with specificity upon the corporate merits of the issues without regard for or succumbing to influences which convert an otherwise valid business decision into a faithless act.
Thus, it is not enough to charge that a director was nominated by or elected at the behest of those controlling the outcome of a corporate election. That is the usual way a person becomes a corporate director. It is the care, attention and sense of individual responsibility to the performance of one's duties, not the method of election, that generally touches on independence 1 .
IN RE THE WALT DISNEY COMPANY) CONSOLIDATED DERIVATIVE LITIGATION. 2003.
Derivative claim requisite.
1 Here, plaintiff has not alleged any facts sufficient to support a claim of control. The personalselection- of- directors allegation stands alone, unsupported. At best it is a conclusion devoid of factual support. The causal link between Fink's control and approval of the employment agreement is alluded to, but nowhere specified. The director's approval, alone, does not establish control, even in the face of Fink's 47% stock ownership. See Kaplan v. Centex Corp., 284 A.2d at 122, 123. The claim that Fink is unlikely to perform any services under the agreement, because of his age, and his conflicting consultant work with Prudential, adds nothing to the control claim. Therefore, we cannot conclude that the complaint factually particularizes any circumstances of control and domination to overcome the presumption of board independence, and thus render the demand futile. 3
When the plaintiff alleges a derivative claim, demand must be made on the board or excused based upon futility. To determine whether demand would be futile, the Court must determine whether the particular facts, as alleged, create a reason to doubt that: (1) the directors are disinterested and independent or (2) the challenged transaction was otherwise the product of a valid exercise of business judgment. *Aronson v. Lewis case+
Plaintiffs may rebut the presumption that the boards decision is entitled to deference by raising a reason to doubt whether the boards action was taken on an informed basis or whether the directors honestly and in good faith believed that the action was in the best interests of the corporation.
These facts, if true, do more than portray directors who, in a negligent or grossly negligent manner, merely failed to inform themselves or to deliberate adequately about an issue of material importance to their corporation. Instead, the facts alleged in the new complaint suggest that the defendant directors consciously and intentionally disregarded their responsibilities, adopting a we dont care about the risks attitude concerning a material corporate decision.
SMITH V. VAN GORKOM. 1985.
Business judgment rule.
In carrying out their managerial roles, directors are charged with an unyielding fiduciary duty to the corporation and its shareholders. The business judgment rule exists to protect and promote the full and free exercise of the managerial power granted to Delaware directors.
The rule itself "is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company."
The determination of whether a business judgment is an informed one tumns on whether the directors have informed themselves "prior to making a business decision, of all material information reasonably available to them." Under the business judgment rule there is no protection for directors who have made "an unintelligent or unadvised judgment.". A director's duty to inform himself in preparation for a decision derives from the fiduciary capacity in which he serves the corporation and its stockholders. Since a director is vested with the responsibility for the management of the affairs of the corporation, he must execute that duty with the recognition that he acts on behalf of others. Such obligation does not tolerate faithlessness or selfdealing.
But fulfillment of the fiduciary function requires more than the mere absence of bad faith or fraud. Representation of the financial interests of others imposes on a director an affirmative duty to 4
protect those interests and to proceed with a critical eye in assessing information of the type and under the circumstances present here. Thus, a director's duty to exercise an informed business judgment is in the nature of a duty of care, as distinguished from a duty of loyalty.
The standard of care applicable to a director's duty of care has also been recently restated by this Court. In Aronson, supra, we stated: While the Delaware cases use a variety of terms to describe the applicable standard of care, our analysis satisfies us that under the business judgment rule director liability is predicated upon concepts of gross negligence 2 .
APRIL 11.
IN RE WALT DISNEY CO. DERIVATIVE LITIGATION. 2005.
I. INTRODUCTION.
- After carefully considering all of the evidence and arguments, and for the reasons set forth in this Opinion, I conclude that the director defendants did not breach their fiduciary duties or commit waste. Therefore, I will enter judgment in favor of the defendants as to all claims in the amended complaint.
- Unlike ideals of corporate governance, a fiduciary's duties do not change over time. How we understand those duties may evolve and become refined, but the duties themselves have not changed.
- This Court strongly encourages directors and officers to employ best practices, as those practices are understood at the time a corporate decision is taken.
2 Without any documents before them concemning the proposed transaction, the members of the Board were required to rely entirely upon Van Gorkom's 20- minute oral presentation of the proposal. No written summary of the terms of the merger was presented; the directors were given no documentation to support the adequacy of $55 price per share for sale of the Company; and the Board had before it nothing more than Van Gorkom's statement of his understanding of the substance of an agreement which he admittedly had never read, nor which any member of the Board had ever seen. The directors were entitled to rely upon their chairman's opinion of value and adequacy, provided that such opinion was reached on a sound basis. Here, the issue is whether the directors informed themselves as to all information that was reasonably available to them. Had they done so, they would have learned of the source and derivation of the $55 price arnd could not reasonably have relied thereupon in good faith. To summarize: we hold that the directors of Trans Union breached their fiduciary duty to their stockholders (1) by their failure to inform themselves of all information reasonably available to them and relevant to their decision to recommend the Pritzker merger; and (2) by their failure to disclose all material information such as a reasonable stockholder would consider important in deciding whether to approve the Pritzker offer. 5
- Fiduciaries who act faithfully and honestly on behalf of those whose interests they represent are indeed granted wide latitude in their efforts to maximize shareholders' investment.
- Even where decision-makers act as faithful servants, however, their ability and the wisdom of their judgments will vary.
- That is why, under our corporate law, corporate decision-makers are held strictly to their fiduciary duties, but within the boundaries of those duties are free to act as their judgment and abilities dictate, free of post hoc penalties from a reviewing court using perfect hindsight.
II. LEGAL STANDARDS.
The fiduciary duties owed by directors of a Delaware corporation are the duties of due care and loyalty.
A. The business judgment rule.
Duty of care: directors must conduct themselves as ordinarily prudent persons managing their own affairs. A decision is taken with due care, when from an ar-ray of alternatives, the directors employ a procedure to pick the one that best advances the interests of the corporation. A director's decision making process, however, can be evaluated only by changing the referent from herself to the corporation.
The business judgment rule is not actually a substantive rule of law, but instead it is a presumption that "in making a business decision the directors of a corporation acted on an informed basis, ... and in the honest belief that the action taken was in the best interests of the company [and its shareholders] ."
This presumption can be rebutted by a showing that the board violated one of its fiduciary duties in connection with the challenged transaction .4i 1 In that event, the burden shifts to the director defendants to demonstrate that the challenged transaction was "entirely fair" to the corporation and its shareholders.
The protections of the business judgment rule will not apply if the directors have made an "unintelligent or unadvised judgment."
B. Waste.
The Delaware Supreme Court has implicitly held that committing waste is an act of bad faith .42 1 It is not necessarily true, however, that every act of bad faith by a director constitutes waste. 6
C. The fiduciary duty of due care.
The fiduciary duty of due care requires that directors of a Delaware corporation ''use that amount of care which ordinarily careful and prudent men would use in similar circumstances," 422 and "consider all material information reasonably available" in making business decisions, and that deficiencies in the directors' process are actionable only if the directors' actions are grossly negligent.
In the duty of care context with respect to corporate fiduciaries, gross negligence has been defined as a "'reckless indifference to or a deliberate disregard of the whole body of stockholders' or actions which are 'without the bounds of reason.
D. The fiduciary duty of loyalty.
Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests. The rule that requires an undivided and unselfish loyalty to the corporation demands that there be no conflict between duty and self-interest.
E. Acting in good faith.
"Honesty of purpose," and a genuine care for the fiduciary's constituents, but, at least in the corporate fiduciary context, it is probably easier to define bad faith rather than good faith." This may be so because Delaware law presumes that directors act in good faith when making business judgments. Bad faith has been defined as authorizing a transaction "for some purpose other than a genuine attempt to advance corporate welfare or [when the transaction] is kwon to constitute a violation of applicable positive law." 45i In other words, an action taken with the intent to harm the corporation is a disloyal act in bad faith.
Bad faith can be the result of "any emotion [that] may cause a director to [intentionally] place his own interests, preferences or appetites before the welfare of the corporation.
The concept of intentional dereliction of duty, a conscious disregard for one's responsibilities, is an appropriate (although not the only) standard for determining whether fiduciaries have acted in good faith.419 Deliberate indifference and inaction in the face of a duty to act is, in my mind, conduct that is clearly disloyal to the corporation. 7
To act in good faith, a director must act at all times with an honesty of purpose and in the best interests and welfare of the corporation. The presumption of the business judgment rule creates a presumption that a director acted in good faith.
III. ANALYSIS.
More specifically, in the area of director action, plaintiffs must prove by a preponderance of the evidence that the presumption of the business judgment rule does not apply either because the directors breached their fiduciary duties, acted in bad faith or that the directors made an "unintelligent or unadvised judgment," 466 by failing to inform themselves of all material information reasonably available to them before making a business decision .
CAREMARK INTERNATIONAL INC. DERIVATIVE LITIGATION. 1996.
Potential liability for directoral decisions: Director liability for a breach of the duty to exercise appropriate attention may, in theory, arise in two distinct contexts. First, such liability may be said to follow from a board decision that results in a loss because that decision was ill advised or "negligent". Second, liability to the corporation for a loss may be said to arise from an unconsidered failure of the board to act in circumstances in which due attention would, arguably, have prevented the loss.
The first class of cases will typically be subject to review under the director-protective business judgment rule, assuming the decision made was the product of a process that was either deliberately considered in good faith or was otherwise rational. See Aronson v. Lewis. Thus, the business judgment rule is process oriented and informed by a deep respect for all good faith board decisions.
If the shareholders thought themselves entitled to some other quality of judgment than such a director produces in the good faith exercise of the powers of office, then the shareholders should have elected other directors.
It is important that the board exercise a good faith judgment that the corporation's information and reporting system is in concept and design adequate to assure the board that appropriate information will come to its attention in a timely manner as a matter of ordinary operations, so that it may satisfy its responsibility.
The duty to act in good faith to be informed cannot be thought to require directors to possess detailed information about all aspects of the operation of the enterprise. Such a requirement would simple be inconsistent with the scale and scope of efficient organization size in this technological age. 8
DUTY OF LOYALTY. APRIL 18.
SHLENSKY V. SOUTH PARKWAY BUILDING. 1960.
The common law standard.
The directors of a corporation are trustees of its business and property for the collective body of stockholders in respect to such business. They are subject to the general rule, in regard to trusts and trustees, that they cannot, in their dealings with the business or property of the trust, use their relation to it for their own personal gain. It is their duty to administer the corporate affairs for the common benefit of all the stockholders, and exercise their best care, skill, and judgment in the management of the corporate business solely in the interest of the corporation. * * * It is a breach of duty for the directors to place themselves in a position where their personal interests would prevent them from acting for the best interests of those they represent.
The relation of directors to corporations is of such a fiduciary nature that transactions between boards having common members are regarded as jealously by the law as are personal dealings between a director and his corporation, and where the fairness of such transactions is challenged the burden is upon those who would maintain them to show their entire fairness and where a sale is involved the full adequacy of the consideration. Especially is this true where a common director is dominating in influence or in character. This court has been consistently emphatic in the application of this rule, which, it has declared, is founded in soundest morality, and we now add in the soundest business policy.
In contrast, the rule of the Geddes and Winger cases, insofar as it provides that the directors shall have the burden of establishing the fairness and propriety of the transactions, not only protects shareholders from exploitation, but permits flexibility in corporate dealings. While the concept of fairness' is incapable of precise definition, courts have stressed such factors as whether the corporation received in the transaction full value in all the commodities purchased; the corporation's need for the property; its ability to finance the purchase; whether the transaction was at the market price, or below, or constituted a better bargain than the corporation could have otherwise obtained in dealings with others; whether there was a detriment to the corporation as a result of the transaction;**802 whether there was a possibility of corporate gain siphoned off by the directors directly or through corporations they controlled; and whether there was full disclosure-although neither disclosure nor shareholder assent can convert a dishonest transaction into a fair one.
9
FARBER V. SERVAN LAND COMPANY. 1981.
The Existence of a Corporate Opportunity [1] In Florida, a corporate director or officer "occupies a quasi-fiduciary relation to the corporation and the existing stockholders. He is bound to act with fidelity and the utmost good faith." Flight Equipment & Engineering Corp. v. Shelton, 103 So.2d 615, 626 (Fla.1958). Because he "occupies a fiduciary relationship to the corporation, [he] will not be allowed to act in hostility to it by acquiring for his own benefit any intangible assets of the corporation . .. He cannot make a private profit from his position or, while acting in that capacity, acquire an interest adverse to that of the corporation. .. "..
"If there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is, from its nature, in the line of the corporation's business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and, by embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity for himself.
GUTH V. LOFT. 1939.
While technically not trustees, they stand in a fiduciary relation to the corporation and its stockholders. A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives, has established a rule that demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his duty, not only affirmatively to protect the interests of the corporation committed to his charge, but also to refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his skill and ability might properly bring to it, or to enable it to make in the reasonable and lawful exercise of its powers. The rule that requires an undivided and unselfish loyalty to the corporation demands that there shall be no conflict between duty and self-interest. The occasions for the determination of honesty, good faith and loyal conduct are many and varied, and no hard and fast rule can be formulated. The standard of loyalty is measured by no fixed scale.
[6] If an officer or director of a corporation, in violation of his duty as such, acquires gain or advantage for himself, the law charges the interest so acquired with a trust for the benefit of the corporation, at its election, while it denies to the betrayer all benefit and profit. The rule, inveterate and uncompromising in its rigidity, does not rest upon the narrow ground of injury or damage to the corporation resulting from a betrayal of confidence, but upon a broader foundation of a wise public policy that, for the purpose of removing all temptation, extinguishes all possibility of profit flowing from a breach of the confidence imposed by the fiduciary relation. Given the relation between the parties, a certain result follows; and a constructive trust is the remedial device through which precedence of self is compelled to give way to the stern demands of loyalty.
10
[7] It is true that when a business opportunity comes to a corporate officer or director in his individual capacity rather than in his official capacity, and the opportunity is one which, because of the nature of the enterprise, is not essential to his corporation, and is one in which it has no interest or expectancy, the officer or director is entitled to treat the opportunity as his own, and the corporation has no interest in it, if, of course, the officer or director has not wrongfully embarked the **511 corporation's resources therein.
[8] On the other hand, it is equally true that, if there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is, from its nature, in the line of the corporation's business and is of practical advantage to it, is one in which *273 the corporation has an interest or a reasonable expectancy, and, by embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity for himself. And, if, in such circumstances, the interests of the corporation are betrayed, the corporation may elect to claim all of the benefits of the transaction for itself, and the law will impress a trust in favor of the corporation upon the property, interests and profits so acquired.
Duty and loyalty are inseparably connected. Duty is that which is required by one's station or occupation; is that which one is bound by legal or moral obligation to do or refrain from doing
But, the appellants say that the expression, in the line of a business, is a phrase so elastic as to furnish no basis for a useful inference. The phrase is not within the field of precise definition, nor is it one that can be bounded by a set formula. It has a flexible meaning, which is to be applied reasonably and sensibly to the facts and circumstances of the particular case. Where a corporation is engaged in a certain business, and an opportunity is presented to it embracing an activity as to which it has fundamental knowledge, practical experience and ability to pursue, which, logically and naturally, is adaptable to its business having regard for its financial position, and is one that is consonant with its reasonable needs and aspirations for expansion, it may be properly said that the opportunity is in the line of the corporation's business.
BURG V. HORN. 1967. When may a corporate manager take a corporate opportunity?
Under New York law, property acquired by a corporate director will be impressed with a constructive trust as a corporation had opportunity only if the corporation had an interest or a 'tangible expectancy' in the property when it was acquired.
it clearly expresses the judgment that the corporate opportunity doctrine should not be used to bar corporate directors from purchasing any property which might be useful to the corporation, but only to prevent their acquisition of property which the corporation needs or is seeking, or which they are otherwise under a duty to the corporation to acquire for it. 11
Thus a director may not purchase for himself property under lease to his corporation, or draw away existing customers of the corporation.. Nor may he purchase property which the corporation needs or has resolved to acquire, or which it is contemplating acquiring. He may not take advantage of an offer made to the corporation, or of knowledge which came to him as a director. None of these proscriptions aids the plaintiff, however, for there is no evidence that the properties she seeks for Darand were offered to or sought by Darand, came to the Horns' attention through Darand, or were necessary to Darand's success.
CORPORATE OPPORTUNITY HARVARD.
The fiduciary duty of loyalty which a director or officer owes to his corporation broadly forbids him to pursue his own interests in a manner injurious to the corporation.
either a director or an officer -- from appropriating to himself a business opportunity which in fairness should belong to the corporation, and subjects any property or profit he so acquires to a constructive trust in favor of the corporation. Like other facets of the general duty of loyalty, this doctrine derives from a judicially drawn analogy between the position of a director or officer and that of a trustee. [
The recent case law can probably be explained adequately only as a judicial recognition of an affirmative duty on the executive's part to advance the interests of his corporation.
The criterion now generally applied to determine whether an opportunity properly belongs to the corporation is whether it is "closely associated with the existing and prospective activities of the corporation" [FN23] -- the so-called "line of business" test.
INDEPENDENCE. APRIL 25.
ORACLE CORP. DERIVATIVE LITIGATION. 2003.
The question of independence turns on whether a director is, for any substantial reason, incapable of making a decision with only the best interests of the corporation in mind.
A director may be compromised and lose independence, if he is beholden to an interested person; beholden does not mean just owing in the financial sense, and it can also flow out of personal or other relationships to the interested party.
The independence inquiry concerning directors on corporations special litigation committee (SLC) recognizes that persons of integrity and reputation can be compromised in their ability to act 12
without bias when they must make a decision adverse to others with whom they share material affiliations.
The question of independence turns on whether a director is, for any substantial reason, incapable of making a decision with only the best interests of the corporation in mind. 3 That is, the independence test ultimately focus*es+ on impartiality and objectivity.
Homo sapiens is not merely homo economicus.
Aronson, which defines independence as meaning that a directors decision is based on the corporate merits of the subject before the board rather than extraneous considerations or influences.
Likewise, Delaware law requires courts to consider the independence of directors based on the facts known to the court about them specifically, the so-called subjective actual person standard. 63 That said, it is inescapable that a court must often apply to the known facts about a specific director a consideration of how a reasonable person similarly situated to that director would behave, given the limited ability of a judge to look into a particular directors heart and mind.
That inquiry recognizes that persons of integrity and reputation can be compromised in their ability to act without bias when they must make a decision adverse to others with whom they share material affiliations.
Derivative action. In simple terms, these tests permit a corporation to terminate a derivative suit if its board is comprised of directors who can impartially consider a demand.58 Special litigation committees are permitted as a last chance for a corporation to control a derivative claim in circumstances when a majority of its directors cannot impartially consider a demand 3 .
3 The purposes of the committee. One of the obvious purposes for forming a special litigation committee is to promote confidence in the integrity of corporate decision making by vesting the companys power to respond to accusations of serious misconduct by high officials in an impartial group of independent directors. By forming a committee whose fairness and objectivity cannot be reasonably questioned TTT the company can assuage concern among its stockholders and retain, through the SLC, control over any claims belonging to the company itself. 13
INSIDER TRADING. MAY 2.
CADY, ROBERTS & CO. 1961 4 .
Section 17 (a) and Rule 1Ob-6, in almost identical terms, make illegal the use of the mails or of the facilities of interstate commerce, including the facility of any national exchange, by any person who directly or indirectly engages in any of the following prohibited kinds of conduct in connection with the sale of any security.
An affirmative duty to disclose material information has been traditionally imposed on corporate "insiders," particularly officers, directors, or controlling stockholders. Failure to make disclosure in these circumstances constitutes a violation of the anti-fraud provisions.
Elements of the obligation. *Analytically, the obligation rests on two principal elements; first, the existence of a relationship giving access, directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone,'151 and second, the inherent unfairness involved where a party takes advantage of such information knowing it is unavailable to those with whom he is dealing.
There is no valid reason why persons who purchase stock from an officer, director or other person having, the responsibilities of an "insider" should not have the same protection -afforded by disclosure of special information as persons who sell stock to them. Whatever distinctions may have existed at common law based on the view that an officer or director may stand in a fiduciary relationship to existing stockholders.
*If purchasers on an exchange had available material information known by a selling insider, we may assume that their investment judgment would be affected and their decision whether to buy might accordingly be modified. Consequently, any sales by the insider must await disclosure of the information 5 .
4 It involves a selling broker who executes a solicited order and sells for discretionary accounts (including that of his wife) upon an exchange. The crucial question is what are the duties of such a broker after receiving nonpublic information as to a company's dividend action from a director who is employed by the same brokerage firm. 5 If Gintel knew was not public, he hastened to sell before the expected public announcement. Gintel undoubtedly occupied a fiduciary relationship to his customers. Clients may not expect of a broker the benefits of his inside information at the expense of the public generally. In that case, we held that a broker dealers sales of a companys securities to customers through misleading statements and without revealing material facts violated anti fraud provisions, notwithstanding the broker dealers assertion that the 14
SEC V. TEXAS. 1967.
Not only are directors or management officers of corporation "insiders" but anyone in possession of material inside information is an "insider" and must either disclose it to investing public, or, if he is disabled from disclosing it in order to protect corporate confidence, or he chooses not to do so, must abstain from trading in or recommending securities concerned while such inside information remains undisclosed.
Individuals, who were insiders within meaning of rule of Securities and Exchange Commission precluding insiders from dealing in stock of corporation without disclosing material inside information, were not justified in engaging in insider activity because disclosure of material inside information was forbidden by legitimate corporate activity of acquisition by corporation of options to purchase land surrounding mineral exploration site, and if information was material, individuals should have kept out of stock market until disclosure of inside information was accomplished.
Duty of insider to disclose information or duty to abstain from dealing in corporation's securities arises only in those situations which are essentially extraordinary in nature and which are reasonably certain to have substantial effect on market price of security if extraordinary situation is disclosed 6 .
Purposed to prevent inequitable and unfair practices and to insure fairness in securities transactions generally, whether conducted face-to-face, over the counter, or on exchanges. The Rule is based in policy on the justifiable expectation of the securities marketplace that all investors trading on impersonal exchanges have relatively equal access to material information
The essence of insider trading.
information concealed from investors had been obtained in confidence from the company and so could not be revealed. There is no evidence of a preconceived plan whereby Cowdin was to "leak" advance information of the dividend reduction so that Gintel could use, it to advantage, before, the public announcement; on the contrary, the evidence points to the conclusion that Cowdin probably assumed, without thinking about it, that the, dividend action was already a matter of public information and his further that hie called registrant's office to find out the effect of the dividend news upon the market. The record, moreover, indicates, that Gintel's conduct was a spontaneous reaction to the dividend news, that he intended primarily to benefit existing clients of Cady, Roberts & Co. and that he acted on the spur of the moment and so quickly as to preclude the possibility of review by registrant or of his own more deliberate consideration of his responsibilities under the securities acts. 6 Had committed no violation as he did not trade before disclosure was made; and that the issuance of the press release was not unlawful because it was not issued for the purpose of benefiting the corporation, there was no evidence that any insider used the release to his personal advantage and it was not "misleading, or deceptive on the basis of the facts then known. 15
The essence of the Rule is that anyone who, trading for his own account in the securities of a corporation has "access, directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone" may not take "advantage of such information knowing it is unavailable to those with whom he is dealing," i. e., the 'investing public. Matter of Cady, Roberts & Co. Material inside information.
An insider's duty to disclose information or his duty to abstain from dealing in his company's securities arises only in "those situations which are essentially extraordinary in nature and which are reasonably certain to have a substantial effect on the market price of the security if [the extraordinary situation is] disclosed. That access to material information be enjoyed equally.
When a information is important or not. The basic test of materiality * * * is whether a reasonable man would attach importance * * in determining his choice of action in the transaction in question. which in reasonable and objective contemplation might affect the value of the corporation's stock or securities.
Material facts. Thus-, material facts include not only information disclosing the earnings and distributions of a company but also those facts which affect the probable future of the company and those which may affect the desire of investors to buy, sell, or Hold the company's securities.
When a material fact should be disclose. We do not suggest that material facts must be disclosed immediately; the timing of disclosure is a matter for the business judgment of the corporate officers. We do intend to convey, however, that where a corporate purpose is thus served by withholding the news of a material fact, those persons who are thus quite properly true to their corporate trust must not during the period of non-disclosure deal personally in the corporation's securities or give to outsiders confidential information not generally available to all the corporations' stockholders and to the public at large.
The insiders here were not trading on an equal footing with the outside investors. They alone were in a position to, evaluate the probability and magnitude of what seemed from the outset to be a major ore strike; they alone could invest safely, secure in the expectation that the price of TGS stock would rise substantially in the event such a major strike should materialize.
CHIARELLA V. US. 1980 7 .
7 The question in this case is whether a person who learns from the confidential documents of one corporation that it is planning an attempt to secure control of a second corporation violates 10 (b) of the Securities Exchange Act of 1934 if he fails to disclose the impending takeover before trading in the target company's securities. When these documents were delivered to the printer, the identities of the acquiring and target corporations were concealed by blank spaces or false names. The true names were sent to the printer on the night of the final printing. Without disclosing his knowledge, petitioner purchased stock in the target companies and sold the shares immediately after the takeover attempts were made public.1 16
Pursuant to this section, the SEC promulgated Rule l0b-5 which provides in pertinent part: "It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, "(a) To employ any device, scheme, or artifice to defraud, [or] "(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security."
The District Court's charge permitted the jury to convict the petitioner if it found that he willfully failed to inform sellers of target company securities that he knew of a forthcoming takeover bid that would make their shares more valuable. Does not state whether silence may constitute a manipulative or deceptive device. Section 10 (b) was designed as a catchall clause to prevent fraudulent practices. The Commission decided that a corporate insider must abstain from trading in the shares of his corporation unless he has first disclosed all material inside information known to him.
But one who fails to disclose material information prior to the consummation of a transaction commits fraud only when he is under a duty to do so. And the duty to disclose arises when one party has information "that the other [party] is entitled to know because of a fiduciary or other similar relation of trust and confidence between them."' In its Cady, Roberts decision, the Commission recognized a relationship of trust and confidence between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position with that corporation."0 This relationship gives rise to a duty to disclose because of the "necessity of preventing a corporate insider from . . . tak [ing] unfair advantage of the uniformed minority stockholders.
*The federal courts have found violations of 10 (b) where corporate insiders used undisclosed information for their own benefit. Accordingly, a purchaser of stock who has no duty to a prospective seller because he is neither an insider nor a fiduciary has been held to have no obligation to reveal material facts.
Thus, administrative and judicial interpretations have established that silence in connection with the purchase or sale of securities may operate as a fraud actionable under 10 (b) despite the absence of statutory language or legislative history specifically addressing the legality of nondisclosure. But such liability is premised upon a duty to disclose arising from a relationship of trust and confidence between parties to a transaction.
In this case, the petitioner was convicted of violating 10 (b) although he was not a corporate insider and he received no confidential information from the target company. Moreover , the "market information" upon which he relied did not concern the earning power or operations of the target company, but only the plans of the acquiring company." 17
The jury simply was told to decide whether petitioner used material, nonpublic information at a time when "he knew other people trading in the securities market did not have access to the same information." The Court of Appeals affirmed the conviction by holding that "[a] nyone-corporate insider or not- who regularly receives material nonpublic information may not use that information to trade in securities without incurring an affirmative duty to disclose." This reasoning suffers from two defects. First, not every instance of financial unfairness constitutes fraudulent activity under 10 (b). See Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 474-477 (1977). Second, the element required to make silence fraudulent-a duty to disclose-is absent in this case. No duty could arise from petitioner's relationship with* ~~the sellers of the target company's securities, for petitioner had no prior dealings with them. He was not their agent, he was not a fiduciary, he was not a person in whom the sellers had * ~placed their trust and confidence.
US V. OHAGAN. 1997 8 .
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange- `(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rises and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors."
Under the "traditional" or "classical theory" of insider trading liability, 10(b) and Rule lob-5 are violated when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information. Trading on such information qualifies as a "deceptive device" under 10(b), we have affirmed, because "a relationship of trust and confidence [exists] between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position with that corporation."
That relationship, we recognized, "gives rise to a duty to disclose [or to abstain from trading] because of the 'necessity of preventing a corporate insider from . .tak[ingl unfair advantage of .. uninformed .. stockholders."'" Id., at 228-229, 100 S.Ct., at 1115 (citation omitted). The classical theory applies not only to officers, directors, and other permanent insiders of a corporation, but also to attorneys, accountants, consultants, and others who temporarily become fiduciaries of a corporation. See Dirks v. SEC.
8 Grand met has a potential offer for stocks of a company. Dorsey was the law firm in charge in which Ohagan works as a lawyer, but not in this particular case. He starts to purchase call options when he hears about the tender offer. When grand met announce its tender offer the price of the stock rose. 18
Misappropriation theory. The "misappropriation theory" holds that a person commits fraud "in connection with" a securities transaction, and thereby violates 10(b) and Rule 10b-5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information.
The misappropriation theory premises liability on a fiduciary-turned-trader's deception of those who entrusted him with access to confidential information. The two theories are complementary, the misappropriation theory outlaws trading on the basis of nonpublic information by a corporate "outsider" in breach of a duty owed not to a trading party, but to the source of the information. The misappropriation theory is thus designed to "protec[t] the integrity of the securities markets against abuses by 'outsiders' to a corporation who have access to confidential information that will affect th[e] corporation's security price when revealed, but who owe no fiduciary or other duty to that corporations shareholders.
Misappropriators, as the Government describes them, deal in deception. A fiduciary who "[pretends] loyalty to the principal while secretly converting the principal's information for personal gain,"
We turn next to the 10(b) requirement that the misappropriator's deceptive use of information be "in connection with L6the purchase or sale of [a] security." This element is satisfied because the fiduciary's fraud is consummated, not when the fiduciary gains the confidential information, but when, without disclosure to his principal, he uses the information to purchase or sell securities.
A misappropriator who trades on the basis of material, nonpublic information, in short, gains his advantageous market position through deception.
"The misappropriation theory would not .apply to a case in which a person defrauded a bank into giving him a loan or embezzled cash from another, and then used the proceeds of the misdeed to purchase securities 9 ."
MAY 9. BASIC INC. V. LEVINSON. 1988 10 .
9 In sum, considering the inhibiting impact on market participation of trading on misappropriated information, and the congressional purposes underlying 10(b), it makes scant sense to hold a lawyer like O'Hagan a 10(b) violator if he works for a law firm representing the target of a tender offer, but not if he works for a law firm representing the bidder. 10 1976 began a conversation of a possibility of a merge. Basic asked NY stock to suspend trading their shares. Some of the shareholders sold their stocks after the first public statement denying the rumors about a merge and before the suspension of trading. a class action against Basic and its directors, asserting that the defendants issued three false or misleading public statements and thereby were in violation of 10(b) of the 1934 Act and of Rule 10b-5. The district court decision: It held that, as a matter of law, any misstatements were immaterial: there were no negotiations ongoing at the time of the first statement, and although negotiations were taking place 19
We must also determine whether a person who traded a corporation's shares on a securities exchange after the issuance of a materially misleading statement by the corporation may invoke a rebuttable presumption that, in trading, he relied on the integrity of the price set by the market.
The 1934 act was designed to protect investors against manipulation of stock prices. There cannot be honest market without honest publicity.
Standard of materiality. "an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. It was concerned that a minimal standard might bring an overabundance of information within its reach, and lead management "simply to bury the shareholders in an avalanche of trivial information-a result that is hardly conducive to informed decision making." Id., at 448-449. It further explained that to fulfill the materiality requirement "there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.
Agreement in principle test. - Overwhelmed detailed and trivial information. - Focuses on the substantial risk that preliminary merger discussion may collapse. - Preserve confidentiality of merger discussions. - When disclosure must be made.
Fraud on the market theory. The fraud on the market theory is based on the hypothesis that, in an open and developed securities market, the price of a company's stock is determined by the available material information regarding the company and its business.
The courts below accepted a presumption, created by the fraud-on-the-market theory and subject to rebuttal by petitioners, that persons who had traded Basic shares had done so in reliance on the integrity of the price set by the market, but because of petitioners' material misrepresentations that price had been fraudulently depressed. Requiring a plaintiff to show a speculative state of facts, i. e., how he would have acted if omitted material information had been disclosed, see Affiliated Ute Citizens v. United States, 406 U. S., at 153-154, or if the misrepresentation had not been made.
when the second and third statements were issued, those negotiations were not "destined, with reasonable certainty, to become a merger agreement in principle." The court of Appeals: The court reasoned that while petitioners were under no general duty to disclose their discussions with Combustion, any statement the company voluntarily released could not be "'so incomplete as to mislead. With respect to materiality, the court rejected the argument that preliminary merger discussions are immaterial as a matter of law, and held that "once a statement is made denying the existence of any discussions, even discussions that might not have been material in absence of the denial are material because they make the statement made untrue." 20
No investor, no speculator, can safely buy and sell securities upon the exchanges without having an intelligent basis for forming his judgment as to the value of the securities he buys or sells. The presumption is also supported by common sense and probability. Recent empirical studies have tended to confirm Congress' premise that the market price of shares traded on well- developed markets reflects all publicly available information, and, hence, any material misrepresentations.'
The Court of Appeals found that petitioners "made public, material misrepresentations and [respondents] sold Basic stock in an impersonal, efficient market. Thus the class, as defined by the district court, has established the threshold facts for proving their loss. " 786 F. 2d, at 75 1.271 The court acknowledged that petitioners may rebut proof of the elements giving rise to the presumption, or show that the misrepresentation in fact did not lead to a distortion of price or that an individual plaintiff traded or would have traded despite his knowing the statement was false.
DISCRIMINATION. MAY 16.
MERITOR SAVINGS BANK V. VINSON 11 .
Types of sexual harassment. In this case, the court stated that a violation of Title VII may be predicated on either of two types of sexual harassment: harassment that involves the conditioning of concrete employment benefits on sexual favors, and harassment that, while not affecting economic benefits, creates a hostile or offensive working environment 12 .
The Court of Appeals held that an employer is absolutely liable for sexual harassment practiced by supervisory personnel, whether or not the employer knew or should have known about the misconduct.
*Title VII of the Civil Rights Act of 1964 makes it "an unlawful employment practice for an employer. ... to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin." when a supervisor sexually harasses a subordinate because of the subordinate's sex, that supervisor "discriminate[s]" on the basis of sex.
In defining "sexual harassment," the Guidelines first describe the kinds of workplace conduct that may be actionable under Title VII. These include "[unwelcome sexual advances, requests for sexual
11 After noting the bank's express policy against discrimination, and finding that neither respondent nor any other employee had ever lodged a complaint about sexual harassment by Taylor, the court ultimately concluded that "the bank was without notice and cannot be held liable for the alleged actions of Taylor." Id., at 14,691, 23 FEP Cases, at 42. The Court of Appeals for the District of Columbia Circuit reversed. 12 the evidence otherwise showed that "Taylor made Vinson's toleration of sexual harassment a condition of her employment," her voluntariness "had no materiality whatsoever." 21
favors, and other verbal or physical conduct of a sexual nature." "such conduct has the purpose or effect of unreasonably interfering with an individual's work performance or creating an intimidating, hostile, or offensive working environment."
"Sexual harassment which creates a hostile or offensive environment for members of one sex is every bit the arbitrary barrier to sexual equality at the workplace that racial harassment is to racial equality. Surely, a requirement that a man or woman run a gauntlet of sexual abuse in return for the privilege of being allowed to work and make a living can be as demeaning and disconcerting as the harshest of racial epithets."
First, the district court apparently believed that a claim for sexual harassment will not lie absent an economic effect on the complainants employment. It is without question that sexual harassment of female employees in which they are asked or required to submit to sexual demands as a condition to obtain employment or to maintain employment or to obtain promotions falls within protection of Title VII") (emphasis added). Since it appears that the District Court made its findings without ever considering the "hostile environment" theory of sexual harassment, the Court of Appeals' decision to remand was correct. But the fact that sex-related conduct was "voluntary," in the sense that the complainant was not forced to participate against her will, is not a defense to a sexual harassment suit brought under Title VII. The gravamen of any sexual harassment claim is that the alleged sexual advances were "unwelcome.'' The correct inquiry is whether respondent by her conduct indicated that the alleged sexual advances were unwelcome, not whether her actual participation in sexual intercourse was voluntary.
The district Court nevertheless went on to consider the question of the banks liability. Finding that the bank was without notice of Taylors alleged conduct. The court of Appeals took the opposite view, holding that an employer is strictly liable for a hostile environment created by a supervisor's sexual advances, even though the employer neither knew nor reasonably could have known of the alleged misconduct. A rule that asks whether a victim of sexual harassment had reasonably available an avenue of complaint regarding such harassment, and, if available and utilized, whether that procedure was reasonably responsive to the employee's complaint. If the employer has an expressed policy against sexual harassment and has implemented a procedure specifically designed to resolve sexual harassment claims, and if the victim does not take advantage of that procedure, the employer should be shielded from liability absent actual knowledge of the sexually hostile environment.
HARRIS V. FORKLIFT. 1993 13 .
13 The district Court held that Hardy's conduct did not create an abusive environment. The court found that some of Hardy's comments offended**370 *Harris+, and would offend the reasonable woman,id., at A-33, 22
Elements to be actionable: (1) to be actionable under Title VII as abusive work environment harassment, the conduct need not seriously affect an employee's psychological well-being or lead the employee to suffer injury; (2) the Meritor standard requires an objectively hostile or abusive environment as well as the victim's subjective perception that the environment is abusive; and (3) whether an environment is sufficiently hostile or abusive to be actionable requires consideration of all the circumstances, not any one factor.
When the workplace is permeated with discriminatory intimidation, ridicule, and insult, 477 U.S., at 65, 106 S.Ct., at 2405, that is sufficiently severe or pervasive to alter the conditions of the victim's employment and create an abusive working environment. This standard, which we reaffirm today, takes a middle path between making actionable any conduct that is merely offensive and requiring the conduct to cause a tangible psychological injury. Likewise, if the victim does not subjectively perceive the environment to be abusive, the conduct has not actually altered the *22 conditions of the victim's employment, and there is no Title VII violation.
Looking all the circumstances. But we can say that whether an environment is hostile or abusive can be determined only by looking at all the circumstances. These may include the frequency of the discriminatory conduct; its severity; whether it is physically threatening or humiliating, or a mere offensive utterance; and whether it unreasonably interferes with an employee's work performance.
DIAZ V. PAN AMERICAN WORLD AIRWAYS 14 .
but that they were not so severe as to be expected to seriously affect [Harris'] psychological well-being. A reasonable woman manager under like circumstances would have been offended by Hardy, but his conduct would not have risen to the level of interfering with that person's work performance. Supreme Court reverse the case. Today's opinion elaborates that the challenged conduct must be severe or pervasive enough to create an objectively hostile or abusive work environment-an environment that a reasonable person would find hostile or abusive. To show such interference, the plaintiff need not prove that his or her tangible productivity has declined as a result of the harassment. Davis v. Monsanto Chemical Co., 858 F.2d 345, 349 (CA6 1988). It suffices to prove that a reasonable person subjected to the discriminatory conduct would find, as the plaintiff did, that the harassment so altered working conditions as to ma*k+e it more difficult to do the job. 14 Celio Diaz applied for a job as flight cabin attendant with Pan American Airlines in 1967. He was rejected because Pan Am had a policy of restricting its hiring for that position to females. He then filed charges with the Equal Employment Opportunity Commission (EEOC) alleging that Pan Am had unlawfully discriminated against him on the grounds of sex. Thus, both parties stipulated that the primary issue for the District Court was whether, for the job of flight qualification (hereafter BFOQ) reasonably necessary to the normal operation" of Pan American' s business. The trial court found that being a female was a BFOQ. 23
'in those certain instances' where there are 'bona fide' qualifications 'reasonably necessary' to the operation of that 'particular' enterprise.
The word "necessary" in section 703(e) requires -that we apply a business rtecessityj test, not a business convenience test. That is to say, discrimination based on sex is valid only when the essence of the business operation would be undermined by not hiring members of one sex exclusively.
the basis of exclusion is the ability to perform non-mechanical functions which we find to be tangential to what is "reasonably necessary" for the business involved, the exclusion of all males because this is the best way to select the kind of personnel Pan Am desires simply cannot be justified. Before sex discrimination can be practiced, it must not only be shown that it is impracticable to find the men that possess the abilities that most women possess, but that the abilities are necessary to the business, not merely tangential. Similarly, we do not feel that the fact that Pan Am's passengers prefer female stewardesses should alter our judgment. On this subject, EEOC guidelines state that a BFOQ ought not be based on "the refusal to hire an individual because of the *preferences of co-workers, the employer, clients or customers.
WEEKS V. SOUTHERN BELL TELEPHONE. 1969 15 .
"(1) The Commission will find that the following situations do not warrant the application of the bona fide occupational qualification exception: (i) the refusal to hire a woman because of her sex, based on assumptions of the comparative employment characteristics of women in general. (ii) the refusal to hire an individual based on stereotyped characterizations of the sexes.
The principle of nondiscrimination requires that individuals be considered on the basis of individual capacities and not on the basis of any characteristics generally attributed to the group. 16 "
INTERNATIONAL UNION V. JOHNSON CONTROLS. 1991.
15 the Company's refusal to consider her application for the position of switchman constituted discrimination based solely on sex, 16 Southern Bell has clearly not met that burden here. They introduced no evidence concerning the lifting abilities of women. Rather, they would have us "assume,"~ on the basis of a "stereotyped characterization" that few or no women can safely lift 30 pounds, while all men are treated as if they can. While one might accept, arguendo, that men are stronger on the average than women, it is not clear that any conclusions about relative lifting ability would follow. This is because it can be argued tenably that technique is as important as strength in determining lifting ability. Technique is hardly a function of sex. They reverse the district court decision and hold that southern bell actually has violated the rule. 24
Discrimination "'on the basis of sex"'" includes discrimination "because of or on the basis of pregnancy, childbirth, or related medical conditions. We concluded above that Johnson Controls' policy is not neutral because it does not apply to the reproductive capacity of the company's male employees in the same way as it applies to that of the females.
Elements to determinate when a sex discrimination is permitted: - Certain instance. - Where sex discrimination is reasonably necessary. - Necessary for the normal operation of the particular business. - Occupational.
Johnson Controls argues that its fetal protection policy falls within the so-called safety exception to the BFOQ. Our cases have stressed that discrimination on the basis of sex because of safety concerns is allowed only in narrow circumstances.
Unless pregnant employees differ from others "in their ability or inability to work," they must be "treated the same" as other employees "for all employment-related purposes." 42 U.S.C. 2000e(k). This language clearly sets forth Congress' remedy for discrimination on the basis of pregnancy and potential pregnancy. Women who are either pregnant or potentially pregnant must be treated like others "similar in their ability ... to work."
We have no difficulty concluding that Johnson Controls cannot establish a BFOQ. Fertile women, as far as appears in the record, participate in the manufacture of batteries as efficiently as anyone else. Johnson Controls' professed moral and ethical concerns about the welfare of the next generation do not suffice to establish a BFOQ of female sterility. Decisions about the welfare of future children must be left to the parents who conceive, bear, support, and raise them rather than to the employers who hire those parents.
Incremental cost of hiring women cannot justify discriminating against them.
CARROLL V. TALMAN FEDERAL SAVINGS. 1979 17 .
When the Equal Employment Opportunity Commission investigated plaintiff's complaint, it concluded that defendant's female dress policy constituted a "disparity in the terms and conditions of females as a class.
17 A savings and loan association's dress policy, which required female employees to wear a uniform, consisting of either a color coordinated skirt or slacks and either a jacket, tunic or vest, but which required only that men in the same position wear business suits or business-type sport jackets and pants, discriminated against women in violation of Civil Rights Act prohibition against sex discrimination with respect to compensation, terms, conditions, or privileges of employment. 25
The dissent relies on the fact that the female uniforms are not "unattractive in style, inferior in quality, ill-fitting, or uncomfortable such that they would cause embarrassment or be considered demeaning," but that is no answer to the discrimination involved.6 Finally, the dissent relies on the fact that the female dress code "did not substantially burden the female employees more than male employees in the enjoyment of their jobs".
Section 703(e) of the statute permits sex discrimination in employment where sex "is a bona fide occupational qualification reasonably necessary to the normal operation" of the particular business.