As I noted earlier today, I thought, upon first read, that the Delaware Supreme Court’s Disney opinion from yesterday dealt a fatal blow to my “not in good faith” director liability argument. For those who missed it the first dozen times, I maintain that a complaining shareholder who is suing her directors, alleging that the directors failed to act in good faith, does not *have* to go so far as to prove “bad faith” acts by her directors, but, rather, she can point to the absence of good faith acts on which to pin liability. The phrase “not in good faith,” I maintain, does not mean (only) “bad faith.” Under my “not in good faith” theory of liability, directors who basically abdicate their duty or bury their heads – which are acts arguably short of bad faith acts – have violated their fiduciary obligation to act “in good faith.” And I thought that when I read the Disney opinion yesterday that the Delaware Supreme Court was boxing me in by maintaining narrowly that “not in good faith” only meant “bad faith.” Not so, it seems.
I had forgotten, when I first read yesterday’s opinion, that sometimes Delaware opinions take a second or third read before one can glean their full import. Such was the case with Disney. While I *thought* that the Disney opinion supported the position that my broad “not in good faith” category had no place in Delaware fiduciary jurisprudence, I was very wrong. More clearly, despite frequently invoking the phrase “bad faith” in the actual holding of the case, the Delaware Supreme Court in Disney did not say that a plaintiff shareholder who was trying to establish that a director acted without good faith in violation of her fiduciary obligations must prove “bad faith.” Quite the opposite: when the court discusses (in what I would call “dicta”) three categories of troublesome director behavior, the third category discussed appears to be almost exactly the same as the Nowicki Not-In-Good-Faith category! And that third category is (a) a category distinct from the court’s “bad faith” category (see below) and (b) a category that deals with liability-meriting behavior!
Allow me to explain in more detail: