The Short But Interesting Life of Good Faith as an Independent Liability Rule

29 Pages Posted: 4 Nov 2010  

Robert B. Thompson

Georgetown University Law Center

Date Written: November 3, 2010

Abstract

Shareholder challenges to director actions usually assert a breach of the fiduciary duties of loyalty or care. For much of the last two decades, Delaware case law referred to a trilogy of duties holding out the possibility that good faith was an independent basis for liability. Recent opinions tell us this is no so. This article examines why good faith flowered for a while as a possible independent basis for liability — as the latest incarnation of fail/safe doctrines permitting courts to rein in questionable behavior that didn’t quite fit within existing categories; as an effort to avoid the exculpation provisions of Delaware’s statute; and as part of a sermonizing function sometimes undertaken by Delaware courts. Now that good faith is firmly ensconced within the duty of loyalty, the article examines whether the path to this point reflects a Delaware judiciary less willing to engage in substantive review of director action in a takeover context.

Keywords: fiduciary duty, good faith, takeovers

JEL Classification: K00, K13, K20, K22

Suggested Citation

Thompson, Robert B., The Short But Interesting Life of Good Faith as an Independent Liability Rule (November 3, 2010). Georgetown Law and Economics Research Paper No. 10-19; Georgetown Public Law Research Paper No. 10-64. Available at SSRN: https://ssrn.com/abstract=1702288

Robert B. Thompson (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States
(202) 661-6591 (Phone)

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