D&O Liability

Fiduciary Duties

In Gantler v. Stephens, 2009 Del. LEXIS 33 (Jan. 27, 2009), the Delaware Supreme Court addressed whether corporate officers have fiduciary duties, an issue which has long been assumed to be the case but which has not previously been established clearly by Delaware courts. The plaintiffs' claims related to decisions and actions of the company's directors and officers in connection with the potential sale of the company. The plaintiffs alleged that the directors and officers rejected or failed to take seriously bids from several prospective purchasers and favored alternate plans that would preserve their positions with the company. Significantly, the plaintiffs alleged that the officers sabotaged the due diligence process as to two of the bidders by their delay and non-responsiveness to requests for information, and thereby scuttled the two offers. In finding that the plaintiffs had alleged sufficient facts to support a claim against the officers for violations of their fiduciary duties, the Gantler court held, without qualification, that “the fiduciary duties of officers are the same as those of directors.” The court further noted that, although the fiduciary duties of care and loyalty of directors and officers may be the same, the effect of a breach of a fiduciary duty may have a disproportionate effect on an officer as compared to a director, because corporations are not authorized under Delaware statutory law to include in its certificate of incorporation a provision exculpating officers from monetary liability for breaches of their duty of care, whereas directors may be so exculpated.