Gantler v. Stephens

Delaware Supreme Court Decision in Gantler v. Stephens

by Doug Cornelius
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The Delaware Supreme Court has clarified that "officers of Delaware corporations, like directors, owe fiduciary duties of care and loyalty, and that the fiduciary duties of officers are the same as those of directors."

The opinion also addresses other major issues in Delaware law:

- The Court upheld the lower court’s refusal to apply the Unocal standard because the transaction was not defensive and the complaint was based on disloyalty as opposed to defensive conduct.

- A board is generally entitled to the presumption of the business judgment rule in declining a merger opportunity because implicit in the statutory authority of the board to propose a merger, is also the power to decline a merger.

- The Court reasoned that the lower court’s ruling on “shareholder ratification grounds” was in error for two reasons. First, because a shareholder vote was required to amend the certificate of incorporation, without approving vote it could not operate to “ratify” the challenged conduct of the interested directors. Second, since the proxy contained a material misrepresentation, the shareholders were not fully informed.

The Supreme Court recognized that the current scope and effect of the common law doctrine of “shareholder ratification” in Delaware is unclear. Thus, in order to

“restore coherence and clarity to this area of our law, we hold that the scope of the shareholder ratification doctrine must be limited to its so-called ‘classic’ form; that is, to circumstances where a fully informed shareholder vote approves director action that does not legally require shareholder approval in order to become legally effective. Moreover the only director action or conduct that can be ratified is that which the shareholders are specifically asked to approve. With one exception, the “cleansing” effect of such a ratifying shareholder vote is to subject the challenged director action to business judgment review, as opposed to “extinguishing” the claim altogether."

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Reference Info: Decision | State, 3rd Circuit, Delaware | United States

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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