Abstract

http://ssrn.com/abstract=2261708
 


 



The Tort Foundation of Duty of Care and Business Judgment


Robert J. Rhee


University of Florida - Fredric G. Levin College of Law

2013

Notre Dame Law Review, Vol. 88, 2013, p. 1139+
U of Maryland Legal Studies Research Paper No. 2013-27

Abstract:     
This Article corrects a misconception in corporation law – the belief that principles of tort law do not apply to the liability scheme of fiduciary duty. A board’s duty of care implies exposure to liability, but the business judgment rule precludes it. Tort law finds fault; corporation law excuses it. The conventional wisdom says that the tort analogy fails. This dismissal of tort prinicples is wrong. Although shareholder derivative suits and ordinary tort cases properly yield systemically antipodal outcomes, they are bound by a common analytical framework. The principles of board liability are rooted in tort doctrines governing duty, customs, and pure economic loss. Properly applied, they produce a duty “to care” (vis-à-vis duty of care), based on a good faith undertaking of care, but upon such undertaking no liability for negligently inflicted economic loss – the exact result achieved by the fiduciary duty of care and the business judgment rule. A sound tort analysis not only theorizes the enigmatic relationship between the duty of care and the business judgment rule, but it also explains Delaware’s puzzling procedural-substantive divide. Fiduciary duty in corporation law rests on a tort foundation. Lastly, the thesis of this Article has a broader implication. The contractarian view of corporation law seeks to relegate the role of courts to passive custodians of the corporate contractual terms provided by the legislature and the corporation’s constituents. However, this view is constrained by a tort framework wherein courts do and should play a robust, albeit reserved, role in regulating important aspects of corporate governance through the continued common law process of doctrinal development of the idea of a wrong.

Number of Pages in PDF File: 61

Keywords: corporation law, tort law, fiduciary duty

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Date posted: May 8, 2013 ; Last revised: July 12, 2013

Suggested Citation

Rhee, Robert J., The Tort Foundation of Duty of Care and Business Judgment (2013). Notre Dame Law Review, Vol. 88, 2013, p. 1139+; U of Maryland Legal Studies Research Paper No. 2013-27. Available at SSRN: http://ssrn.com/abstract=2261708

Contact Information

Robert J. Rhee (Contact Author)
University of Florida - Fredric G. Levin College of Law ( email )
P.O. Box 117625
Gainesville, FL 32611-7625
United States
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