Title: Calling Off the Lynch Mob: The Corporate Director's Fiduciary Disclosure Duty
Abstract:Culminating in this year's decision in Kahn v. Roberts and Arnold v. Society for Savings Bancorp., the Delaware Supreme Court has had increasingly frequent occasion to consider the scope of the corpor...Culminating in this year's decision in Kahn v. Roberts and Arnold v. Society for Savings Bancorp., the Delaware Supreme Court has had increasingly frequent occasion to consider the scope of the corporate director's duty of disclosure to stockholders. That trend may accelerate even further, as constriction of federal securities law remedies prompts increasing resort to state law theories of recovery for disclosure shortcomings. As the Kahn decision illustrates, however, the courts have only begun to illuminate the contours of the director's fiduciary duty of disclosure. To some extent, judicial decisions have defined that duty overbroadly, perhaps driven by the moral quality of fiduciary rhetoric. To define the director's fiduciary disclosure duty more appropriately, this Article supplies an analytical framework for the further development of this aspect of fiduciary doctrine.In developing this analytical framework, the Article first examines and rejects the claim that the director's fiduciary disclosure duty arises, under Delaware law, from a corporate statute repealed in 1967. The Article then reviews the common law development of the duty and identifies four distinct contexts in which a fiduciary disclosure duty on the part of directors has been found. The duty appropriately has been most exacting where directors seek stockholder approval in order to validate transactions in which their personal interests conflict with those of the corporation or its stockholders generally. Such a disclosure duty has also increasingly been identified where directors purchase stock from outside stockholders on the basis of information gained through their function as directors. More recently, a fiduciary disclosure duty has been applied where directors seek stockholder action with respect to transactions in which they have no conflicting personal interest. This Article urges that the fiduciary disclosure duty must be more restrained in this disinterested context, and should require proof of negligence, reliance and damages as a predicate to director monetary liability - like the analytically equivalent tort of negligent misrepresentation. Finally, the Article concludes that the question left unresolved in. the recent Kahn opinion - whether directors have a fiduciary disclosure duty when they make statements which do not involve soliciting or recommending stockholder actions should be answered in the negative. Where disinterested directors do not recommend or seek stockholder action, no reliance on superior informational resources is present, and no fiduciary disclosure duty should be found to exist.Read More
Publication Year: 1996
Publication Date: 1996-10-01
Language: en
Type: article
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Cited By Count: 3
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