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The Duty of Disclosure for Corporate Officers: Avoiding Liability in the Face of Growing Litigation Trend

The Review of Securities & Commodities Regulation
June 15, 2021, Tyler J. Leavengood, Jaclyn C. Levy and Justin T. Hymes

In this article the authors outline the fiduciary duties of officers and directors under Delaware law and the limits of their protections from liability. They then turn to recent Delaware cases involving allegations against officers in M&A transactions for breach of the duty of disclosure. They close with practical guidance for officers in such transactions to mitigate the risk of liability.

In 2009, the Delaware Supreme Court eliminated any doubt as to whether officers of a Delaware corporation owe fiduciary duties to the corporation and its stockholders, confirming in Gantler v. Stephens that directors and officers owe the same duties. Yet, in the wake of the Gantler decision, there was not a sudden uptick in the number of decisions holding officers liable for breach of fiduciary duty. In the last two years, however, several decisions by Delaware courts have denied motions to dismiss claims against officers – acting solely in their officer-capacity – for breaches of the duty of care, and more specifically, for breaches of the duty of disclosure in connection with proxy statements relating to proposed transactions. Although the number of such decisions remains relatively small, they nevertheless serve as a warning to officers that their merger-related actions may be subjected to judicial review.

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