Title: A Defense of the Corporate Law Duty of Care
Abstract: I. INTRODUCTIONThe fiduciary duty of care does not seem to get very much respect. Most people would acknowledge the importance of the duty of loyalty,1 but the same is not true of the duty of care. Historically, the corporate law duty of care has been underenforced at best, and arguably unenforced entirely. When it seemed that the courts might finally breathe life into the duty, legislatures responded quickly to prevent that from happening. Some scholars do not consider the duty of care to be a fiduciary duty at all, and there are those who would do away with it entirely. It seems that the duty of care does not have many defenders these days.2In this Article, I intend to provide a comprehensive defense of the fiduciary duty of care in corporate law. I hope to show that the duty of care is not simply an ill-fitting appendage to the duty of loyalty, but rather an essential aspect of the singular fiduciary concept that also encompasses the duty of loyalty. Simply put, a fiduciary has the duty to act in the interests of the beneficiary in all relevant respects. Once the breadth of this singular fiduciary concept is properly understood, it is revealed to be much more than any of the individual duties that it comprises. Far from being streamlined or focused, fiduciary law would be impoverished if it were limited to the duty of loyalty. Thus, the duty of care should not be eliminated from the ranks of fiduciary duties.However, I do not intend to argue for a more robust duty of care. Rather, I will defend the duty of care, as it currently exists in corporate law (more or less) 3-deliberately and advisedly underenforced, but not entirely unenforced. 4 There are many benefits that flow from the duty of care, but also many costs. A policy of reduced enforcement can significantly mitigate many of those costs, while retaining most of the benefits. In other words, the duty of care works in the corporate context precisely because caution is built into the enforcement equation.This Article will proceed as follows. Part II will consider various arguments against the duty of care. These arguments can be grouped into several categories: that there really is no such duty because it is unenforced; that the duty is undesirable for practical reasons; that the duty is unnecessary because of other forces; and that the duty of care is not a fiduciary duty. The arguments have varying degrees of merit, and each will be considered in turn. One theme will recur: whatever merit the argument may have when considered against a robust duty of care is severely diminished when considered against the existing, underenforced duty. In other words, most arguments against the duty of care are logically only arguments for reduced enforcement of the duty of care. They do not establish that non-enforcement or elimination of the duty of care would be ideal.Part III will consider various arguments in favor of the duty of care. I start by showing that the duty of care is a well-established fiduciary duty and then address its deterrence value. Next, I argue that the duty of care is necessary because of the duty of loyalty's shortcomings: first, that it is also underenforced and therefore unable to police fiduciary relationships on its own, and second, that the concept of loyalty is inadequate to capture the essence of the fiduciary principle. Finally, I discuss the expressive value of law: the duty of care is necessary to let fiduciaries know that they have a legal duty to pursue the beneficiaries' interests with skill and diligence (i.e., carefully), and not merely to avoid conflicts of interest (i.e., loyally).I close with a discussion of why the issue matters. I explain that the fiduciary principle is necessarily broad and expansive and cannot be boiled down to a few simple rules. I then argue that the urge to simplify the law of fiduciary duties by eliminating the duty of care from its ranks is misguided. Finally, I suggest that, in the long run, the courts will tend to resist the reductionist impulse to simplify at the expense of equity. …
Publication Year: 2015
Publication Date: 2015-03-22
Language: en
Type: article
Access and Citation
Cited By Count: 6
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot