[Machine Malfunction] Michael, the President of a Health Club Operation

question 48

Multiple Choice

[Machine Malfunction] Michael, the president of a health club operation called Head-to-Toe Health Club, convinced the board of directors to approve a large purchase of a certain fitness machine called "Perfect Body." Michael had carefully investigated the machine and did a presentation to the board on its purported benefits. Unfortunately, after the purchase, it was announced that "Perfect Body" was actually a very dangerous machine that should not be used. The manufacturer of "Perfect Body" went bankrupt, and Head-to-Toe lost $200,000 on the purchase of the machines. The shareholders are furious and want to sue Michael and the directors. In an attempt to appease the ring leader of the shareholders, Simone, the board of directors agrees to allow her to purchase stock of the company at below its fair market value. Simone purchases a considerable amount of stock on that basis, but says that the shareholders plan to continue with an action against Michael and the board members.
-Under which of the following should Michael and the board of directors defend themselves in an action brought by shareholders for harming the corporation?

• A) The superior judgment rule.
• B) The research and investigation rule.
• C) The business judgment rule.
• D) The rule of corporate integrity.
• E) There is no defense.

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Definitions:

Peritubular Capillaries

Tiny blood vessels that surround the tubules in the kidney where exchange of substances between the blood and tubules occurs.

Uric Acid

A waste product formed from the breakdown of purines in the body, which is excreted in urine. High levels may lead to gout or kidney stones.

Freshwater Fishes

Fish species that live in bodies of freshwater like rivers, lakes, and ponds, as opposed to saltwater habitats.

Nitrogenous Wastes

Waste products that contain nitrogen, such as urea and ammonia, resulting from the metabolism of proteins.