1

DUTY OF CARE. APRIL 4.

ARONSON V. LEWIS. 1984

"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.