Supreme Court First Petty Bench Decision of February 9, 1995, 1523 Hanji 149, 874 Hanta 123, 967 Kinhan 12. The Court approved application of regulations relating to termination of employees with respect to the termination of a limited partner of a limited partnership (goshi gaisha) who had been appointed managing director of the partnership and was, in effect, performing the duties of the general partner. Relying on the prohibition of partners in a limited partnership from managing the affairs or representing the partnership contained in Commercial Code Article 156 (Supreme Court Decision of July 26, 1949, 3 Minshu 8-283), the Court determined the limited partner had not been assigned duties of management pursuant to the charter of the limited partnership but had merely offered its services pursuant to the directions of the partnership representative, and was therefore more appropriately classified as an employee.

Supreme Court First Petty Bench Decision of March 9, 1995, 1529 Hanji 153, 877 Hanta 176, 971 Kinhan 3. The Court reversed a lower court dismissal of a corporate shareholder's representative suit against a corporation based on its failure to include a full description of a proposed sale of the corporation’s business in a notice for a special shareholders’ meeting called for the purposes of consideration of the proposed sale, as is required by Commercial Code Article 245-2. The lower court had found the violation insignificant and having no effect on the ultimate shareholder decision, and had therefore dismissed the action pursuant to Commercial Code Article 251. The Court reversed, indicating that the lower court did not have discretionary power to dismiss the action based on the level of its illegality where the provision violated was not a corporate bylaw, but was codified as statute.

Supreme Court Third Petty Bench Decision of April 25, 1995, (Unpublished). The Court affirmed a lower court’s dismissal of the claims of a group of employees of a closely held corporation who had received shares in their employer at face value pursuant to the company’s employee stock ownership plan ("ESOP"). Upon the issuance of the shares, the employees had agreed that, upon their retirement or termination, the shares received would be sold at face value to a person designated by the Board of Directors. In 1986, the employees simultaneously resigned and the company convened a Board of Directors meeting which designated the son of the representative director as the person to whom the shares were to be sold. The shareholders challenged the forced sale asserting that the board's designation of the buyer violated Commercial Code Article 204, which requires the board's power to approve share transfers be stipulated in the articles of incorporation, and that the forced sale of the shares at face value violated public order and morals as it deprived investors of appropriate financial benefit from their investment. Nonetheless, the Court upheld the agreement between the employees and the closed company as not violative of either Article 204 or public order and morals.

Supreme Court Third Petty Bench Decision of November 12, 1996, 153 Shojihomu 171. In the instant case, the plaintiff, a shareholder of the defendant power corporation, had arrived at the location of the annual shareholders’ meeting the night before and had waited in line since early morning outside the facility at which the shareholders’ meeting was to be held in order to get a seat near the front of the room. However, once admitted to the facility, the plaintiff discovered that of the approximately 230 seats prepared for the shareholders meeting, the first five rows from the front, approximately 78 seats, had been previously reserved for employee shareholders of the company. As one of the topics to be discussed at the meeting was the company’s future strategy with respect to nuclear power, the company had reserved these seats in an attempt to avoid disruption of the meeting by anti-nuclear activists. Although the plaintiff found a seat in the sixth row, and was able to offer a motion for shareholder consideration during the meeting, the plaintiff claimed to have suffered mental anguish as a result of the defendant’s reservation of seating for a particular group of its shareholders. The lower court had found the defendant’s actions reasonable in light of the company’s past troubles with anti-nuclear activists and that the plaintiff had not suffered as a result of his failure to obtain the seat he desired at the annual shareholders’ meeting. Although the Court agreed that the defendant’s reservation of seating did not affect the exercise of the plaintiff’s legal rights as a shareholder, and therefore dismissed the plaintiff’s appeal, the Court nonetheless found that the defendant’s reservation of seating was a discriminatory policy lacking a rational basis.

Tokyo High Court Decision of September 26, 1995, 1549 Hanji 11, 890 Hanta 45, 981 Kinsho 8. The court affirmed a lower court's denial of liability of the directors of Nomura Securities (Tokyo District Court Decision of September 16, 1993) who, in a meeting on March 23, 1990, decided to reimburse approximately 16 billion yen in losses incurred by various large customers of Nomura in 1989 and 1990 as a result of investments undertaken based on Nomura’s advise, including those in funds managed by Nomura.  Nomura shareholders had initiated a shareholders derivative suit for damages as a result of the directors’ actions.  The court found that the Securities Exchange Act, prior to its revision in 1991 contained no direct prohibition against reimbursement of losses provided there had been no previous guarantee of reimbursement.  Similarly, the court dismissed claims that the directors’ actions violated antitrust laws, disrupted public order, and were in derogation of the directors’ duty of good faith and loyalty.

Tokyo High Court Decision of February 8, 1996, 151 Shojihomu 143. The court affirmed a lower court’s invalidation of a corporate board resolution. The plaintiff, one of the shareholders of the defendant joint stock corporation brought suit to invalidate a resolution of the defendant’s board of directors approving the sale of property held by held by the defendant to another corporation for approximately 82 million yen. At the time of the resolution, the representative director of the defendant corporation was also serving as the representative director of the corporation purchasing the property. At the director’s meeting at which the resolution was adopted, six of the seven directors were present at the meeting, and all six directors, including the representative director, adopted the resolution. The plaintiff asserted that, because, under Civil Code Article 265, the sale of the property gave rise to a conflict of interest between those of the representative director and the defendant corporation, the representative director’s participation in the adoption of the resolution had the effect of invalidating the resolution. The defendant argued (a) because the identity of the shareholders of both the defendant corporation and the purchaser corporation were nearly identical, there was no conflict of interest under Commercial Code Article 265; (b) even if a conflict of interest was present, the representative director’s presence at the meeting and participation in adopting the resolution did not impair the validity of the resolution as, exclusive of the representative director, five directors of the seven member of the defendant corporation’s board of directors had voted in favor of the resolution; and (c) the plaintiff’s wife, also a member of the defendant’s board of directors had also voted in favor of the resolution. Affirming the lower court’s invalidation of the board resolution, (Tokyo District Court Decision of September 20, 1995, 1572 Hanji 131), the court found that, regardless of the similarity in the identity of the shareholders of the two companies, the proposed purchase of the property gave rise to a conflict of interest, and an appropriate interpretation of Commercial Code Article 265 not only prohibited the representative director from participating in the adoption of the resolution but also prohibited him from acting in the capacity as leader of the meeting or even attending the meeting at all. It is not difficult to imagine that, as the person in control of the meeting agenda, the leader of the directors’ meeting has the capacity to exert a great deal of influence over the nature and content of the proceedings. Accordingly, the mere fact that the remaining directors other than the representative director voted in favor of the resolution does not effect the underlying procedural flaw in the meeting.

Tokyo District Court Decision of June 20, 1996, 1572 Hanji 27, 1000 Kinsho 39. In 1991, the defendant, the Japan Aeronautical and Electric Manufacturing Company, Ltd. (JAEC), was discovered to have been involved in two instances of the illegal sale and export of its products (1) between March 1984 and September 1986 and (2) between January 1986 and April 1988. As a result of these activities, JAEC was required to pay approximately 2.9 billion yen in fines and special assessments to the United States Departments of Justice, State and Commerce and was prohibited from exporting its products for a period of three (3) years. A similar prohibition, as well as fines of approximately 50 million yen, were also imposed by Japanese authorities. Finally, JAEC’s manufacturing license was temporarily suspended and, as a result, JAEC suffered approximately 630 million yen in losses. Plaintiffs, a class of JAEC shareholders asserted derivative claims for reimbursement of penalties and damages suffered by the company against (1) the current chief executive officer of JAEC (Defendant A), (2) a former member of the board of directors (Defendant B) and (3) a former manager and member of the board of directors (Defendant C). Although the illegal activities had been undertaken by a relatively small group of JAEC employees, Defendant A, who had been appointed representative director and president of JAEC in June 1987, had become aware of the illegal activities in September of 1987. In order to avoid difficulties which might arise if JAEC terminated its performance, Defendant A authorized performance of JAEC’s limited contractual obligations with respect to the second instance of illegal exportation. Defendant B accidentally discovered the illegal trading activities shortly after his election to the board of directors in 1985. Like Defendant A, Defendant B authorized performance of JAEC’s limited contractual obligations with respect to the second instance of illegal exportation, and refrained from reporting the matter to the other members of the board of directors. Defendant C was the former manager of JAEC’s aeronautical business section. He had actively participated in the first instance of illegal exportation and had participated in the decision-making process with respect to the second instance of illegal exportation. In June 1986, he was appointed to the JAEC board of directors, and continued to manage and support both instances of illegal exportation. The court acknowledged that the defendants had breached their duty of care and loyalty in both acknowledging and failing to prevent the illegal activities and that, under Commercial Code Article 266-1(5), faced personal liability for losses stemming from the violation of export and foreign exchange laws. However, the amount of liability to be assessed with respect to each defendant should be proportional to the degree to which each defendant’s action or inaction bore a causal relationship to the resulting loss. For example, Defendants A and B were only partially responsible for losses stemming from the suspension of operations, and had only limited involvement the second instance of illegal export, and should therefore have limited liability with respect to the losses suffered thereby.