# Question 69: The Founder Supply-Deal Opinion

## Your role

You are the incoming general counsel of Willowmere Foods. Audit a predecessor's opinion letter concluding that the board validly approved a five-year supply contract with a company owned by Willowmere's founder and chief executive. Identify which conclusions survive, which fail under the supplied rules, and which cannot be accepted without missing facts.

## Governing law

Assume the following corporate-governance rules apply:

1. A seven-member board has a quorum when at least four directors are present. Interested directors may be counted for quorum unless the charter provides otherwise.

2. A director is interested when the director or an immediate family member has a material financial interest in the transaction. A director lacks independence when material ties create reasonable doubt about judgment free from the interested person's influence.

3. An interested transaction is protected by the statutory safe harbor only if all material facts concerning the interest and transaction are disclosed and a majority of the disinterested, independent directors approve in good faith.

4. Interested directors may explain the transaction but their votes do not count toward the disinterested majority required by rule 3.

5. A sale of substantially all corporate assets requires shareholder approval. An ordinary-course supply contract does not require shareholder approval merely because its total payments are large.

6. A board may delegate evaluation to a committee composed entirely of disinterested, independent directors. A properly informed committee may approve or ratify before the corporation materially performs, but ratification cannot erase completed unfair dealing or undisclosed personal benefit.

7. A fairness opinion is evidence, not cleansing by itself. Its weight depends on adviser independence, complete inputs, and disclosure of material assumptions and relationships.

8. Charter exculpation may eliminate monetary liability for care violations. It does not bar injunctions, rescission, loyalty claims, bad faith, or improper personal benefit.

9. An opinion audit must distinguish legal conclusions from assumed facts and must identify facts whose absence changes the conclusion.

## Facts

Willowmere has seven directors:

* Founder and chief executive Mara Wynn.
* Mara's brother, Leon Wynn.
* Five outside directors: Priya Shah, Colin Beck, Tomas Ives, Ruth Ellery, and Nia Cole.

Mara owns 70 percent of Wynn Agricultural Supply. Willowmere signed a five-year contract requiring minimum purchases expected to total $18 million. Wynn Agricultural will earn an estimated $3.2 million gross margin if minimums are met.

All seven directors attended the approval meeting. Mara disclosed her 70 percent ownership. She did not disclose a side agreement paying her a personal $250,000 bonus if Willowmere reaches the second-year minimum. Leon voted for the contract. Priya and Colin voted for it. Tomas voted against it. Ruth and Nia abstained. Mara also voted for it.

Colin has a $400,000 personal loan outstanding from Mara's family trust. The file does not state the loan terms, materiality to Colin, or whether the board knew of it. Priya has no identified tie.

The board received a fairness letter from Meridian Advisory stating that the contract price was within an industry range. The file does not include Meridian's engagement letter, prior-fee history with Mara, underlying comparable contracts, or the assumption schedule.

The contract was signed yesterday. No goods have shipped and no payment is due for 45 days.

## Predecessor opinion

The predecessor wrote:

1. “The meeting had a valid quorum because all seven directors attended.”
2. “Mara's ownership is not legally material because the contract is below $25 million.”
3. “The contract received valid disinterested approval because four directors voted yes.”
4. “Leon may be treated as disinterested because he does not personally own Wynn Agricultural.”
5. “Shareholder approval is required because the five-year payment total exceeds 20 percent of Willowmere's assets.”
6. “Meridian's fairness letter conclusively restores business-judgment protection.”
7. “The charter exculpation clause prevents any injunction or rescission.”
8. “If any defect exists, an independent committee may consider ratification before performance.”

## Assignment

Review and correct the opinion:

* State which conclusions survive as written.
* Identify every conclusion that fails and apply the supplied rule.
* Identify every conclusion that depends on facts missing from the file.
* Determine whether a valid disinterested approval occurred on the existing record.
* Explain the significance of Mara's bonus, Leon's status, Colin's loan, and the Meridian file.
* Address shareholder approval, exculpation, and ratification.
* Give the incoming general counsel a concrete action plan before the first shipment or payment.

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