April/May 2010 / Features
Fiduciary Duties of a Buyer’s Board
2009 was an active year for litigation focused on the fiduciary duties of public company directors. The Delaware courts remained protective of the business judgment rule and maintained a high bar to findings of bad faith and personal liability.
There already has been one notable Delaware Chancery Court opinion this year. In re Dow Chemical Company Derivative Litigation, concerned breach of fiduciary duty claims against Dow’s board in connection with a merger agreement with Rohm and Hass. The agreement provided Rohm and Hass a right of specific performance, in addition to monetary penalties for delay or failure to close, but did not contain a financing condition. Dow was unable to obtain financing to complete the merger. Dow shareholders alleged breaches of fiduciary duties, including approving the transaction without a financing condition, thus placing the company in a “precarious position, facing potential financial ruin.”
In dismissing the shareholders’ claims, the court said that the directors’ decision was a proper exercise of business judgment that could not be challenged by plaintiffs merely unhappy with the outcome. The court noted that the plaintiffs appeared to focus principally on the “substantive content of the directors’ decision,” rather than the decision-making process.
In addition, the court made clear that there is no heightened scrutiny standard of business judgment applicable to “bet-the-company” decisions.
