Substantive
Breach
Duty of
Loyalty
DE
MBCA
Generally –
Duty to act in
the best interest
of the
corporation
8.30 (a)
1. Usurpation
2. Self
– Technicolor
Dealing
3. Good Faith



(1)
Usurpation
Senior officer
Owes
fiduciary duty
AND
Business
opportunity
Want
opportunity
for
themselves,
but should
Procedural
Posture
(a) A director
shall discharge
his duties as a
director,
including his
duties as a
member of a
committee:
(1) in good
faith;
(2) with the
care an
ordinarily
prudent person
in a like
position would
exercise under
similar
circumstances;
and
(3) in a manner
he reasonably
believes to be
in the best
interests of the
corporation.
DE
MBCA
Business
Judgement Rule
Entire Fairness
DE
MBCA says
nothing at BJR.
Use the same,
essential analysis
DE
MBCA
Entire Fairness
1. Fair
dealing
2. Fair price
Safe
harbors:
majority
of
qualified
directors
- Or
majority
of
qualified
shares
- or Fair
Rebut the BJR
with the majority
of the board is
interested of
lacking
independence
Factors for
Totality of the
circumstances
analysis in DE:
timing, disclosure,
competition,
majority of
disinterested
directors, majority
of disinterested
directors, process,
outside opinion
Interested/lacking
independent
judgement
(Orman)
Rebut the BJR
with the majority
of the board is
interested of
lacking
independence
have offered
to the corp
(2) Self-Dealing
(3) Good faith
Stone v. Ritter –
When a
fiduciary:
1. Intentionally
acts with
purpose other
than advancing
best interests of
corp
ii. Acts with
intent to violate
law
ONLY in DE
iii. Intentionally
fails to act in
the face of a
known duty to
act,
demonstrating
a conscious
disregard for
his duties.
Duty of
Care
Technicolor/8.30 8.30(b)
-- mention that it
The members
is rooted in
of the board
negligence
of directors or
theory
a committee
of the board,
when
becoming
informed in
connection
with their
decisionmaking
function or
devoting
Will also see this attention to
their
in Smith
oversight
function, shall
discharge
their duties
Duty to make
informed
decisions
- Must inform
himself and the
other Directors
with all
reasonably
available
material
information
Director oversight
1. Utterly
failed to
implement
controls
(conscious
failure)
2. Failure to
adequately
monitor
(even with
controls)
Gross negligence
in informing
(Smith v
VanGorkum)
Irrational ->
standard for
waste
Only arises at
trial. Was
traditionally for
DE Chancery
cases only, did
not address
decision making.
(standard applies
We are saying that to everything but
the directors did
rarely see it in a
not do anything
DoC case)
and they had a
duty to do so
with the care
that a person
in a like
position
would
reasonably
believe
appropriate
under similar
circumstances
Historical to
act as a
reasonable
director or
officer
TO win, you would have to make a motion like Usurpation, prove self-interest or lack of
independence to get passed the BJR motion to dismiss, then demonstrate fairness