Last week, the Delaware Supreme Court backed off any notion that directors owe their corporations any special duties of good faith (or absence of bad faith) and retreated to the more traditional standards of corporate duties. In a refreshingly lucid and terse (easily edited to 5 pages of casebook text) opinion, Justice Carolyn Berger, for the Court en banc, clarifies that directors do not have to follow any specific steps when deciding to sell corporate control and that reasonable steps to that end are enough to reject any claim that they failed to act in good faith—even on a motion for summary judgment.
This decision, Lyondell Chemical Co. v. Ryan, is noteworthy because in two other noted opinions in 2006 (Disney and Stone v. Ritter), the Delaware Supreme Court suggested, in dicta, that there were potentially recurring contexts in which directors might fail to act in good faith such that, apart from any other duty, they may be personally liable for that. Delaware’s latest marks return to more familiar doctrinal terrain. The role of good faith, ultimately, is to prevent fiduciaries who engage in particularly egregious conduct, or “conscious disregard of duty,” from avoiding liability for money damages or enjoying corporate indemnification, both under Delaware statutory law.
Of course, given Delaware’s notoriously shifting corporate law, what Justice Berger settles in Lyondell could change in Delaware’s next big case. After all, Delaware courts, consciously seeing themselves as judges in equity, may, on egregious facts, revive the notion of good faith as an independent fiduciary duty or some vital aspect of obligation, such as a component or cognate of the duty of loyalty. But, for now, Lyondell puts the notion of good faith in something of a coma. Not dead, but nary alive.
Where that leaves Delaware corporate fiduciary duty doctrine is on more familiar terrain. The following is a snap shot of that terrain for directors and officers.