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Making Sense of the Delaware Supreme Court's Triad of Fiduciary Duties

56 Pages Posted: 15 Jul 2005  

Filippo Rossi

Studio Legale Lombardi Molinari e associati

Date Written: June 22, 2005

Abstract

The paper is aimed at providing some clarification of the corporate director's triad of fiduciary duties of care, loyalty and good faith recently stated by the Delaware Supreme Court. Following to an analysis of the "safe harbors" provided by Delaware law to shield corporate directors from the risk of personal liability (namely, the business judgment rule, the exculpation statutes, indemnification and D&O insurance), the paper pursues this objective through a diachronic analysis of the evolution of corporate fiduciary duties, discussing the evolution of the Delaware's doctrine of good faith.

In this context, the paper particularly focuses on the current disagreement in Delaware between the Supreme Court and the Court of Chancery as to whether the element of good faith should be considered a separate fiduciary duty of equal dignity with the two traditional duties of loyalty and due care.

Having set the framework in which assessing fiduciary duties, the paper proposes an innovative classification of the respective ambits of application of the duties of loyalty, care and good faith, taking into account the decision of the Chancery Court in In re The Walt Disney Company Derivative Litigation. It also adopts a comparative methodological approach to define the conducts that would actionably violate the duty of good faith. In this context, the paper argues that the judgment of the House of Lords in Three Rivers v. Bank of England can be applied to assess alleged breaches of the duty of good faith by corporate directors.

The paper conclusively suggests that the adoption of the proposed definition of the duty of good faith and reclassification of the traditional fiduciary duties may arguably increase corporate governance standards and provide a doctrinal rationalization of fiduciary duties.

Keywords: Delaware, fiduciary duties, good faith, Disney, directors, corporation

JEL Classification: G30, G38, G39

Suggested Citation

Rossi, Filippo, Making Sense of the Delaware Supreme Court's Triad of Fiduciary Duties (June 22, 2005). Available at SSRN: https://ssrn.com/abstract=755784 or http://dx.doi.org/10.2139/ssrn.755784

Filippo Rossi (Contact Author)

Studio Legale Lombardi Molinari e associati ( email )

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Milan, Milan 20121
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