 |
 |
to fill out a simple form to connect to Personal Injury Lawyers in your area.
|
|
|
|
|
In re Walt Disney Co. Consolidated Derivative Litigation8/9/2005
tion and its shareholders.
In Van Gorkom, the Delaware Supreme Court analyzed the Trans Union board of directors as a whole in determining whether the protections of the business judgment rule applied. More recent cases understand that liability determinations must be on a director-by-director basis. In Emerging Communications,Justice Jacobs wrote (while sitting as a Vice Chancellor) that the "liability of the directors must be determined on an individual basis because the nature of their breach of duty (if any), and whether they are exculpated from liability for that breach, can vary for each director."
There is a not insignificant degree of tension between these two positions, notwithstanding the procedural differences between the two cases.
Even if the directors have exercised their business judgment, the protections of the business judgment rule will not apply if the directors have made an "unintelligent or unadvised judgment." Furthermore, in instances where directors have not exercised business judgment, that is, in the event of director inaction, the protections of the business judgment rule do not apply. Under those circumstances, the appropriate standard for determining liability is widely believed to be gross negligence, but a single Delaware case has held that ordinary negligence would be the appropriate standard.
B. Waste Corporate waste is very rarely found in Delaware courts because the applicable test imposes such an onerous burden upon a plaintiff-proving "an exchange that is so one sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration." In other words, waste is a rare, "unconscionable case where directors irrationally squander or give away corporate assets."
The Delaware Supreme Court has implicitly held that committing waste is an act of bad faith. It is not necessarily true, however, that every act of bad faith by a director constitutes waste. For example, if a director acts in bad faith (for whatever reason), but the transaction is one in which a businessperson of ordinary, sound judgment concludes that the corporation received adequate consideration, the transaction would not constitute waste.
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," 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. Chancellor Allen described the two contexts in which liability for a breach of the duty of care can arise:
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.
Chancellor Allen then explained with respect to board decisions:
.[These] 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. What should be understood, but may not widely be understood by courts or commentators who are not often required to face such questions, is that compliance with a director's duty of care can never appropriately be judicially determined by
Page 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 Delaware Personal Injury Attorneys
Personal Injury Lawyers
|
| |
to fill out a simple form to connect to Personal Injury Lawyers in your area.
|
|