Good Faith, State of Mind, and the Outer Boundaries of Director Liability in Corporate Law
Christopher M. Bruner
Washington and Lee University - School of Law
Wake Forest Law Review, Vol. 41, p. 1131, 2006
Boston Univ. School of Law Working Paper No. 05-19
The Delaware General Corporation Law was amended in 1986 to permit shareholder-approved exculpatory charter provisions shielding corporate directors from monetary liability for certain fiduciary duty breaches not including (among other things) breaches of the duty of loyalty and acts not in good faith. This article examines the development of corporate fiduciary duty doctrine in Delaware leading up to and following this statutory amendment, focusing particularly on the Delaware courts' evolving conception of the meaning and doctrinal status of the good faith concept employed in recent cases to permit a non-exculpable cause of action for conscious nonfeasance.
The article argues that Delaware's good faith case law and statutory exculpation regime rendered the fiduciary duty framework internally contradictory and practically unworkable. A remedy is proposed in the form of a statutory amendment replacing the exculpation regime with a provision permitting the imposition of monetary liability only for loyalty breaches, defined broadly to reach cases of conscious nonfeasance recently styled by the courts as evidencing a lack of good faith. In so doing, the article argues that good faith should be treated as a component of the fiduciary duty of loyalty, and advocates a doctrinal framework substantially similar to that adopted by the Delaware Supreme Court in its Stone v. Ritter opinion (discussed in the article's postscript).
Number of Pages in PDF File: 59
Keywords: corporate law, corporate governance, fiduciary duties, good faith, business judgment rule, exculpation
JEL Classification: K22Accepted Paper Series
Date posted: October 27, 2005
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