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The (No Longer) Overlooked Duty of Good Faith Under Delaware Law

July 1, 2003, John F. Grossbauer, Nancy N. Waterman

Introduction

In the Delaware Court of Chancery's recent opinion in the Walt Disney Company derivative litigation,[2] the Court found that plaintiffs stated a valid claim of personal liability against the Disney directors in connection with their approval of employment and severance agreements with former president Michael Ovitz.  This case is significant, not only because it is one of the few cases in which plaintiffs have successfully pleaded excessive compensation claims against a disinterested board, but also because the decision is one of the few cases that explores the duty of directors to act in good faith.  The Disney case, together with other recent developments, suggests an increased focus by the Delaware courts on this duty.  However, the contours of the duty of good faith have not been fully explored.  This article will attempt to summarize the case law concerning the duty of good faith, and to make some general observations about the circumstances in which there may be a risk that the duty will be violated.  The article concludes that the duty of good faith continues to function as a "safety valve" to capture conduct by disinterested directors that is aberrational or that amounts to an abdication of their duty to oversee the business affairs of the corporation.

Fiduciary Duties Generally

In carrying out their central responsibilities, directors have an unyielding fiduciary duty to protect the interests of the corporation and to act in the best interests of the corporation's stockholders.[3]  Traditionally, those fiduciary duties were characterized as duties of due care and of loyalty.  More recently, however, the Delaware Supreme Court clarified that this unyielding fiduciary responsibility involves a "triad" of duties: due care, good faith, and loyalty.[4]

  • The duty of due care requires that directors act in a fully-informed manner and with the requisite level of care dictated by the particular circumstances.
  • The duty of loyalty requires that directors act unselfishly; the best interests of the corporation and its stockholders must take precedence over any interest possessed by a director personally and not shared by the stockholders generally.
  • The duty of good faith was recognized as a distinct directorial duty in Cede & Co. v. Technicolor, Inc.[5]  The duty of good faith requires that directors act honestly, in the best interest of the corporation, and in a manner that is not knowingly unlawful or contrary to public policy.  Since that time, however, its contours have not been fully developed.

The Delaware Supreme Court has emphasized that this tripartite "fiduciary duty does not operate intermittently but is the constant compass by which all director actions for the corporation and interactions with its stockholders must be guided."[6]

The Increasing Significance of the Duty of Good Faith

The impetus for an increased focus on the duty of good faith is the availability of damages as a remedy against directors who are found to have acted in bad faith.  Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL") authorizes corporations to include in their certificates of incorporation a provision eliminating or limiting directors' liability for breach of the fiduciary duty of due care.[7]  However, Section 102(b)(7) also expressly provides that directors cannot be protected from liability for either actions not taken in good faith or breaches of the duty of loyalty.[8]

Because corporate governance reforms initiated by stock exchanges (and, in some cases, mandated by the Sarbanes-Oxley Act) will require public companies to populate their boards with a predominance of independent directors, duty of loyalty cases may become more difficult to pursue.[9]  Thus, plaintiffs may be encouraged instead to explore duty of good faith claims as an alternative rationale for demand futility arguments.

A finding of a lack of good faith has profound significance for directors not only because they may not be exculpated from liability for such conduct, but also because a prerequisite to eligibility for indemnification under Section 145 of the DGCL is that the directors must have acted "in good faith and in a manner the person reasonably believed was in or not opposed to the best interests of the corporation."[10]  Accordingly, a director who has breached the duty of good faith not only is exposed to personal liability, but also may not be able to seek indemnification from the corporation for any judgment obtained against her or for expenses incurred in (unsuccessfully) litigating the issue of liability.  In contrast, it is at least theoretically possible that a director who has been found to have breached his or her duty of loyalty could be found to have acted in good faith and, therefore, be eligible for indemnification of expenses (and, in non-derivative cases, amounts paid in judgment or settlement) by the corporation.[11]

Thus, in cases involving decisions made by directors who are disinterested and independent with respect to a transaction (and, therefore, the duty of loyalty is not implicated), the duty of good faith provides an avenue for asserting claims of personal liability against the directors.  Moreover, these claims, if successful, create barriers to indemnification of amounts paid by directors in judgment or settlement.[12]  However, given the paucity of case law focusing on the meaning of "good faith" (and the fact that good faith was not specifically identified as a separate fiduciary duty until 1993), claims of a lack of good faith have been only rarely litigated.

Renewed Focus on Good Faith

In the wake of numerous corporate governance scandals, the duty of good faith has been the focus of renewed attention.  This attention was heightened by public statements by sitting members of the Delaware judiciary, who have spoken of good faith as a potential avenue for plaintiffs seeking to challenge decisions made by facially disinterested and independent boards of directors.

Chief Justice Veasey, in remarks made in a roundtable discussion of CEO compensation, focused on the duty of good faith as offering a theory that potential plaintiffs might successfully present, at least at the pleading stage:

  • If directors claim to be independent by saying, for example, that they base [compensation] decisions on some performance measure and [then] don't do so, or if they are disingenuous or dishonest about it, it seems to me that the courts in some circumstances could treat their behavior as a breach of … good faith.[13]

Vice Chancellor Strine sounded a similar theme in a recent Business Lawyer article.  In that article, the Vice Chancellor explored how the Enron debacle might exert pressure on courts to look more carefully at whether directors have made a good faith effort to accomplish their duties.[14]

Vice Chancellor Strine noted that, apart from its influence on the independent director debate, Enron will also generate increased pressure on courts to examine carefully the plausibility of directors' claims that they were able to devote sufficient time to their duties to have carried them out in good faith.

  • It has, of course, become common for courts to examine board processes carefully in the high-profile context of fast-moving take-over contests.  [citations omitted]  But Enron and situations like it suggest to me that skillful plaintiffs' lawyers will begin making common-sense arguments about the disconnect between the routine tasks directors undertook to perform and the effort they put into accomplish [sic] them.[15]

The Vice Chancellor noted that these arguments might sharpen the importance of "state of mind" determinations.  He concluded that the most significant reason this is so is because of the prevalence of exculpatory charter provisions adopted under Section 102(b)(7).  Because accounting fraud cases such as Enron's usually arise after it is too late for prospective injunctive relief to be of much use, these provisions are important to litigators, because "in the absence of evidence that the outside directors had a financial interest in the underlying misconduct, they force plaintiffs' counsel to challenge the state of mind (i.e., the good faith) of the outside directors."[16]

The question, therefore, becomes:  In what type of conduct must a director engage to be found guilty of a breach of the duty of good faith?  Case law, including the recent Disney case, provides some guidelines (and some measure of comfort to reasonably attentive boards of directors).

Delaware Case Law Discussing the Duty of Good Faith

Early Cases.  The concept of "good faith" found expression in early Delaware case law.  However, because the modern business judgment rule had not yet been fully developed, the concept of good faith was not separately explored.  Rather, good faith was simply stated as a prerequisite to a court's deference to a board's decision, which would only be disregarded in cases of "fraud."

Thus, in Bodell v. General Gas & Electric Corp.,[17] the Delaware Supreme Court, in language similar to the modern business judgment rule, stated that it would defer to board decisions unless they were tainted by fraud, "actual or constructive, such as improper motive or personal gain or arbitrary action or conscious disregard of the interests of the Corporation and the rights of its stockholders."  Because there was no evidence that the directors did not "use their honest and best judgment," the directors were found to have acted "in good faith, in the exercise of their best judgment, and for what they believed to be the advantage of the corporation and all its stockholders."

The use of "fraud" to describe the absence of good faith was also found in Allied Chemical & Dye Corp. v. Steel & Tube Co. of America.[18]  In that case, minority stockholders petitioned to enjoin a sale of assets promoted and approved by majority stockholders.  Once again, while the Court approached the issue as one of "fraud," it did so using language similar to more recent articulations of the business judgment rule.  In denying the injunction, the Court reasoned that "so long as the [alleged] inadequacy of price may reasonably be referred to as an honest exercise of sound judgment, it cannot be denominated as fraudulent.  When the price proposed to be accepted is so far below what is found to be a fair one that it can be explained only on the theory of fraud, or a reckless indifference to the rights of others interested, it would seem that it should not be allowed to stand."  Id. at 494.

A similar analysis was employed in Allaun v. Consolidated Oil Co.,[19] which involved a challenge to the adequacy of consideration for a sale of assets:  "The disparity must be sufficiently great to indicate that it arises not so much from an honest mistake in judgment concerning the value of the assets, as from either improper motives underlying the judgment of those in whom the right to judge is vested or a reckless indifference to or a deliberate disregard of the interests of the whole body of stockholders including of course the minority."

Bad Faith as Overcoming the Business Judgment Rule

In more recent times, Delaware courts carried forward the theme of the early cases that inferred "fraud" from aberrational conduct.  However, rather than characterizing such conduct as fraudulent, these decisions characterized conduct by disinterested directors that was sufficiently egregious or "irrational" so as to justify overcoming the deference normally accorded to informed decisions by disinterested directors pursuant to the business judgment rule as having been taken in "bad faith."

Chancellor Allen's analysis of a claim of bad faith conduct by disinterested directors in In re RJR Nabisco, Inc. Shareholders Litig.,[20] provides some guidance as to the type of conduct that might constitute a breach of the duty of good faith.  It illustrates the difficulty courts have in divining subjective motivation (good faith or bad faith) from objective facts, and suggests that conduct must be fairly egregious in order to rise to the level of "bad faith."

In RJR, plaintiffs sought to enjoin the closing of a pending tender offer that was intended to be followed promptly by a merger.  No member of the board appeared to have an interest in the transaction. Plaintiffs' theory of breach of the duty of good faith was that the directors were in fact not motivated to try to achieve the best available transaction for the benefit of the shareholders but were inappropriately motivated to be seen publicly as repudiating the Company's management because the directors sought to disassociate their names from the harsh criticism that management's actions had engendered.[21]  Thus, plaintiffs argued that the directors' were inappropriately motivated to favor one bidder even if it allegedly meant not getting the best available transaction for the corporation's shareholders.  The directors' financial advisors had told the directors that the two competing offers were substantially equivalent in value.  The plaintiffs argued that if the directors had been properly motivated, they would have sought to break the tie between the two bidders instead of accepting the non-management offer.[22]

The Court determined that the fact that the board was faced with what it could reasonably believe were bids that were essentially equivalent from a financial point of view was a relevant circumstance is assessing its good faith in acting as it did.[23]  The Court also found it especially relevant that the directors had been placed under severe time constraints by the non-management bidder (they had been given thirty minutes to accept the bid on pain of its being withdrawn.).  Chancellor Allen concluded:  "In the light of these circumstances, the decision not to attempt to break the tie but to accept one of the bids at that point and thus avoid the risk of the loss of that bid - no matter that my personal view might be that the risk was rather small - can in no event be seen as justifying an inference that those who made such a choice must have had some motivation other than the honest pursuit of the corporation's welfare."[24]  The Chancellor also determined that the decision to prefer the non-management bid could not be viewed "as so beyond the bounds of reasonable judgment as to raise an inference of bad faith….; the judgment reached does not, as indicated, appear so far afield as to raise a question of the motivation of the board."[25]

Chancellor Allen's analysis of good faith attempted to harmonize the "fraud" cases with those focusing on the rationality of a board's decision:

  • True irrationality is unlikely to be encountered when boards of directors of large enterprises act deliberately, after receiving the advice of professionals…  It might be suggested that in such a setting, action that obviously is not 'rationally' designed to maximize corporate or shareholder interests, is best understood as a 'rational' breach of the duty to proceed in the good faith pursuit of appropriate interests.[26]

So viewed, the limited substantive review that the business judgment rule contemplates "(i.e., is the judgment under review 'egregious' or 'irrational' or 'so beyond reason,' etc.) really is a way of inferring bad faith."[27]

In re J.P. Stevens & Co., Inc. Shareholders Litig.[28] represents another articulation of an analysis in which a court pointed to "irrational" conduct as evidence of improper motivation that might also be characterized as having been taken in bad faith.

The Court noted that the policy of the business judgment rule prevents substantive review of the merits of a business decision made in good faith and with due care.  "A court may, however, review the substance of a business decision made by an apparently well motivated board for the limited purpose of assessing whether that decision is so far beyond the bounds of reasonable judgment that it seems essentially inexplicable on any ground other than bad faith."[29]  The Court remarked that this "escape hatch" language has been variously stated in Delaware case law:  "egregious" decisions are said to be beyond the protections of the business judgment rule, as are decisions that cannot "be attributed to any rational business purpose", or decisions that constitute "a gross abuse of discretion."[30]

In contrast, the decision of the Court of Chancery in In re Holly Farms Corp. Shareholders Litig.,[31] illustrates a judicial reluctance to infer improper motives from even aberrational conduct.  In Holly Farms, a potential bidder for and certain stockholders of a target corporation sought a preliminary mandatory injunction to enjoin the effectuation of provisions for an asset option lock up, termination fee and expense reimbursement contained in a merger agreement.  They also sought to compel the corporation to redeem a stock rights plan.  The essence of the claim was that the board did not conduct an auction of the company and therefore failed to attempt to maximize shareholder value upon the sale of the corporation.[32]

The Court found that because the board did not utilize proper procedures designed to maximize the value of the corporation after the board decided to sell it, a preliminary injunction was warranted.  The Court found that the board did not make any serious effort to negotiate with another bidder who had expressed interest nor had it encouraged that bidder to put its best offer on the table.  Especially significant to the Court was that the board refused to tell that bidder in the face of direct questioning whether the corporation was to be sold.[33]

The Court concluded:

  • Even if the Board thought it was acting in good faith, the sale process itself was so substantially flawed that the Board's actions, considering all the facts and circumstances, were not likely to have maximized the value of the corporation for its shareholders and, therefore, its actions cannot be viewed as being rational.[34]

* * *

There may be some theoretical appeal to the proposition that unless a court can ascertain some subjective intention by a board to do wrong, a facially objective board should be given unfettered leave to conduct an auction as it pleases or displeases.  I, however, have seldom been able to ascertain the subjective intent of board members except by reviewing the objective effect of their acts and I do not believe that it is possible for a court to meaningfully review an auction except by reviewing the objective procedures used.[35]

In Cinerama, Inc. v. Technicolor, Inc.,[36] the Delaware Supreme Court articulated good faith as one of a "triad" of fiduciary duties, the others being due care and loyalty.  While the Court did not articulate in that case the standard by which good faith would be measured, the Court did cite Allaun, supra, which spoke in terms of "improper motivation," or "reckless indifference" to the interests of all stockholders as being necessary to overcome a court's natural deference to board decision making authority.

Post-Cinerama Cases

In In re Caremark Intern. Inc. Derivative Litig.,[37] the Court approved a proposed settlement of claims that members of the board breached their fiduciary duty of care in connection with alleged violations by company employees of federal and state laws and regulations.  Specifically, the claim was that the directors allowed a situation to develop and continue that exposed the corporation to enormous legal liability and that in so doing they violated a duty to be active monitors of corporate performance.  While the claim was framed as involving due care, the Chancellor's articulation of the standard for proving a breach of that duty (at least in cases involving the "duty to monitor" performance) was expressed in terms of good faith:  "Generally where a claim of directorial liability for corporate loss is predicated upon ignorance of liability creating activities within the corporation…, in my opinion only a sustained or systematic failure of the board to exercise oversight-such as an utter failure to attempt to assure a reasonable information and reporting system exists-will establish the lack of good faith that is a necessary condition to liability.  Such a test of liability-lack of good faith as evidenced by sustained or systematic failure of a director to exercise reasonable oversight-is quite high."[38]

The Court found that the breach of duty of care claim was extremely weak because the record did not support the conclusion that the defendants either lacked good faith in the exercise of their monitoring responsibilities or consciously permitted a known violation of law by the corporation to occur.[39]

Vice Chancellor Strine articulated a similar view in his analysis of Caremark:  "That opinion is most often cited to emphasize the duty of directors to exercise due care in monitoring the corporation's compliance with legal standards-including standards of fair disclosure of the corporation's financial health.  But Caremark also suggests that directors should only be held personally liable for a failure to monitor if their laxity in oversight was so persistent and substantial that it evidences bad faith."[40]

The Vice Chancellor then posited the potential use of this standard by plaintiffs' lawyers in the post-Enron environment:  "[O]ne can see how plaintiffs' lawyers might approach 'duty to monitor' cases somewhat differently in the near future.  They might well ask courts to infer not only that audit committee members did not know enough about their company's financial and accounting practices, but also that the committee members knew that their inadequate knowledge disabled them from discharging their responsibilities with fidelity.  Stated crudely, the court will be called on to conclude that a director who is conscious that he is not devoting sufficient attention to his duties in not acting in good faith, and is therefore not entitled to exculpation from damages liability."[41]

In Strassburger v. Earley, 752 A.2d 557 (Del. Ch. 2000), a minority shareholder brought a derivative action claiming the board breached its fiduciary duty by arranging for the corporation to repurchase 83% of its outstanding stock, resulting in the transfer of control to the corporation's president.  The Court subjected the repurchase transactions to entire fairness review because the controlling stockholders and the directors stood on both sides of the transaction.  However, in the course of his analysis, Vice Chancellor Jacobs engaged in a discussion of individual director culpability that may provide some guidance in distinguishing breaches of the duty of good faith from breaches of the duties of loyalty or due care.

Focusing first on the duty of loyalty, the Court found that the two directors nominated by one of the former controlling stockholders were not themselves unjustly enriched and did not otherwise obtain a personal benefit at the shareholders' expense.  "Nor is there evidence that the two directors conspired with [the president] in the sense that they acted intentionally and in bad faith (emphasis added) to enable him wrongfully to benefit at the corporation's expense."  Nonetheless, the Court found that they had breached their duty of loyalty in approving the repurchases.  "Their sin was not one of venality, but rather, of indifference to their duty to protect the interests of the corporation and its minority shareholders.  Stated differently, because their primary loyalty was to the interest of their employer, Triton [the controlling stockholder], in exiting [the corporation], [these two directors] were willing to subordinate those interests to [the president's].  The inevitable consequence was that [the two directors] gave priority to Triton's interest, and ignored their fiduciary obligation as [the corporation's] directors to assure that all [the corporation's] stockholders would be treated fairly."[42]

In analyzing the conduct of a director who was unaffiliated with either the former controlling stockholder or the president, Vice Chancellor Jacobs again equated bad faith with intentional conduct injurious to the corporation.  The Court defined bad faith as deliberate action to benefit the majority stockholders at the expense of the minority and found that the director had not acted in bad faith.[43]  "Rather, [a]t best, [his] belief that he was furthering the interests of all [the corporation's] shareholders was misguided, and at worst, it was misinformed, i.e., was not the product of due care."[44]

Thus, as in Caremark, the Court in Strassburger set a high standard for a finding of bad faith by an otherwise disinterested and independent director.

The Disney Opinion

In Disney, Chancellor Chandler refused to grant a motion to dismiss a complaint seeking to hold the directors of The Walt Disney Company personally liable for damages to the Company allegedly arising out of the hiring and termination of Michael Ovitz as Disney's President.  While the Court's finding that the complaint adequately alleged facts overcoming the business judgment rule protection of a disinterested board of directors[45] is unusual, the opinion is consistent with the views expressed in earlier cases and commentary, which suggested that "bad faith" only will be found in fairly egregious circumstances.

The amended complaint in the Disney case painted a picture of complete director abdication of authority on a subject of importance to the corporation:  the hiring and firing of its President.  The complaint alleged that, when Mr. Ovitz was hired, the Compensation Committee and the Board paid scant attention to the terms of his employment, leaving the details instead to be negotiated by Mr. Ovitz and his "close friend," Michael Eisner, Disney's Chief Executive Officer.  The complaint alleged that the Compensation Committee and the full Board both failed to review any drafts of the employment agreement, spent very little time considering the agreement at their respective meetings, and neglected to obtain expert advice concerning the reasonableness of the generous terms granted to Mr. Ovitz.[46]  Moreover, while the final agreement differed materially from the terms summarized for the Compensation Committee, in particular regarding termination, no further Board or Committee discussion occurred.  With respect to Mr. Ovitz's termination, the complaint alleged that the Board took a similar "ostrich-like approach."[47]  Indeed, the complaint alleged there was no input from, or review by, either the Compensation Committee or the full Board of the terms of his departure, even after the termination arrangement was publicly disclosed and after the payout thereunder was accelerated by one month, and notwithstanding that Board approval was allegedly required for these actions.  Instead, the Board "chose to remain invisible in the process."[48]

The Board's allegedly willfully neglectful nature was key to the Court's decision to deny the motion to dismiss.  While the business judgment rule might have applied if "the board had taken the time or effort to review [its] options, perhaps with the assistance of expert legal advisors," the allegations, if true, "imply that the defendant directors knew that they were making material decisions without adequate information and without adequate deliberation, and that they simply did not care if the decisions caused the corporation and its stockholders to suffer injury or loss."[49]  In the Court's view, when a director consciously ignores his or her duties to the corporation, thereby causing economic injury to its stockholders, the director's actions are to be viewed as either "not in good faith" or "involv[ing] intentional misconduct."[50]  Accordingly, the Court concluded that the claims were sufficient to survive a motion to dismiss.


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Conclusion


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The duty of good faith requires that a director be motivated to act in the best interests of the corporation and its stockholders.  While the Court's review requires it to examine the board's subjective motivation, the Court will utilize objective facts to infer such motivation.  Like a duty of care analysis, such review likely will focus on the process by which the board reached the decision under review.  Id.  Consistent with earlier articulations of the level of conduct necessary to infer bad faith (or irrationality), more recent case law, including the recent Disney decision, suggests that only fairly egregious conduct (such as a knowing and deliberate indifference to a potential risk of harm to the corporation) will rise to the level of "bad faith."  Nevertheless, as the Disney decision evidences, the Delaware courts may be more willing now to seriously consider claims of bad faith by otherwise disinterested directors who are alleged to have abdicated their responsibilities or acted in a manner contrary to their professed rationale.  As Chancellor Chandler's opinion confirms, however, Delaware courts are likely to remain extremely reluctant to impose liability on disinterested directors who make genuine efforts to fulfill their duty to make informed decisions regarding matters of importance to the corporation.


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Notes

1   Mr. Grossbauer is a partner in, and Ms. Waterman is associated with, Potter Anderson & Corroon LLP, Wilmington, Delaware.
 
2   In re The Walt Disney Company Derivative Litigation, C.A. No. 15452, Chandler, C. (Del. Ch. May 28, 2003) (hereinafter "Disney").
 
3   E.g., Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985); Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939).
 
4   Emerald Partners v. Berlin, 787 A.2d 85, 90 (Del. 2001) (citing Malone v. Brincat, 722 A.2d 5, 10 (1998)); Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993); McMullin v. Beran, 765 A.2d 910, 917 (Del. 2000).
 
5   634 A.2d 345, 361 (Del. 1993).
 
6   Malone, 722 A.2d at 10.
 
7   8 Del. C. § 102(b)(7).
 
8   Specifically, Section 102(b)(7) authorizes the inclusion in a certificate of incorporation of:

  • A provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director:  (i) For any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under § 174 of this title [dealing with the unlawful payment of dividends or unlawful stock purchase or redemption]; or (iv) for any transaction from which the director derived an improper personal benefit….

8 Del. C. § 102(b)(7).
 
9   See Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (demand required prior to initiating derivative suit unless majority of board is interested or the decision was not the "product of a valid exercise of business judgment"). 
10   8 Del. C. §§ 145(a) and (b). 
11   See Blasius Industries, Inc. v. Atlas Corp., 564 A.2d 651 (Del. Ch. 1988) (directors found to have acted in good faith but nevertheless breached their duty of loyalty). 
12   The availability of directors and officers liability insurance also may be brought into question by a finding of bad faith. Policies often contain exclusions that could be cited by carriers as a basis for denying coverage. 
13   Useem, Overpaid CEOS? Try Suing the Paymasters, Fortune (Dec. 19, 2002). 
14   Strine, Derivative Impact? Some Early Reflections on the Corporation Law Implications of the Enron Debacle, 57 Bus. Law. 1371 (Aug. 2002) (hereinafter "Strine"). 
15   Id. at 1385. 
16   Id. at 1385-86. 
17   140 A.2d 264, 267-68 (Del. 1920). 
18   120 A. 486 (Del. Ch. 1923). 
19   147 A.257, 261 (Del. Ch. 1929). 
20   1989 WL 7036, *14-15 (Del. Ch. Jan. 31, 1989). 
21   Id. at *2. 
22   Id. at *15-16. 
23   Id. at *17. 
24   Id. at *17 (citing In re J.P. Stevens & Co., Inc. Shareholders Litig., 542 A.2d 770, 780, at n.5). 
25   Id. at *18. 
26   Id. at *21. 
27   Id. at *22, n.13 (Del. Ch. 1989) (citing Allied Chemical & Dye Corp. v. Steel & Tube Co., 120 A. 486, 494 (Del. Ch. 1923); Allaun v. Consolidated Oil Co., 147 A. 257, 261 (Del. Ch. 1929)). 
28   542 A.2d 770 (Del. Ch. 1988). 
29   Id. at 780-81 (emphasis in the original). 
30   Aronson v. Lewis at 805 ("egregious" decisions); Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971) (no rational purpose); Warshaw v. Calhoun, 221 A.2d 487 (Del. 1966) (gross abuse of discretion). See also Kaplan v. Goldsamt, 380 A.2d 556, 567 (Del. Ch. 1977); Gimbel v. The Signal Companies, 316 A.2d 599, 610 (Del. Ch. 1974) ("inadequacy … so gross as to display itself as a badge of fraud"); Marks v. Wolfson, 188 A.2d 680, 685 (Del. Ch. 1963) ("price … for the sale of … assets was so clearly inadequate as constructively to carry the badge of fraud"). 
31   1988 WL 143010 (Del. Ch. Dec. 30, 1988). 
32   1988 WL 143010, at *1, 3-4. 
33   Id. at *5. 
34   Id. at *5 (emphasis added). 
35   Id. at *9 (emphasis added). 
36   634 A.2d 345 (Del. 1993). 
37   698 A.2d 959 (Del. Ch. 1996). 
38   Id. at 971 (emphasis added). 
39   Id. at 972. 
40   Strine, 57 Bus. Law at 1386 (citation omitted) (footnote omitted). 
41   Id. at 1394 (acknowledging that courts will deal sensitively with arguments of this kind and err on the side of directors when close questions arise). 
42   Id. at 581 (emphasis in the original). 
43   Id. at 582. 
44   Id
45   The Disney opinion discussed above focused on an amended complaint filed by plaintiffs after their initial complaint was dismissed for failure to adequately plead breaches of fiduciary duty.  Brehm v. Eisner, 746 A. 2d 244 (Del. 2000).  The Supreme Court's decision expressly found that a majority of the Disney board (including Michael Eisner) was disinterested in the challenged transaction, and prohibited plaintiffs from relitigating that issue.  Thus, plaintiffs were required to plead facts sufficient to overcome the presumption of the business judgment rule. 
46   The Chancellor expressly noted that the discussion of Mr. Ovitz's hiring took up 1 ½ pages in the 15 pages of minutes of the meeting at which it was approved, and much of that discussion centered on a "finder's fee" to be paid to another director.  Disney, Mem. Op. at 23. 
47   Id. at 26. 
48   Id. at 27. 
49   Id. at 28. 
50   Id. at 29 (quoting DGCL § 102 (b) (7)).