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[Vol. 30:53

good faith . . . [or] from which the director derived an improper per- sonal benefit.”79

At that point, corporate decision-makers stopped talking about emigration from Delaware and started a wave of immigration to it. In the next proxy season, a large number of publicly held corpora- tions incorporated in other states sought shareholder approval to re- incorporate in Delaware.80

Naturally, that did not sit well with the legislatures of the other states, to whom Van Gorkom had given such hope of gaining market share at Delaware’s expense. Now, thanks to the Delaware legisla- ture, they were not only not gaining market share, they were losing it. Accordingly, most states quickly provided some version of exculpa- tion from damages, either by giving permission to “opt in” or “opt out” of liability in the corporate articles, or, less frequently, by a di- rect grant of protection by statute.81


Exculpation in Florida

Florida not only jumped on that bandwagon early, but also adopted one of the most protective statutory exculpation provisions around. Florida directors are not liable82 to the corporation, its

79. DEL. CODE ANN. tit. 8, § 102(b)(7) (2001). Most Delaware corporations have amended their charters to take advantage of the provision. However, exculpation in Dela- ware has not turned out to protect directors as much as its drafters perhaps intended. The statute does not define the duty of loyalty, but apparently it means something more than just improper receipt of a personal benefit (since that is a separate category). Under Dela- ware law, conflict of interest and controlling shareholder transactions remain “loyalty” cases even if they have been approved by independent directors, Kahn v. Lynch Communi- cations Sys., Inc., 638 A.2d 1110 (Del. 1994), and those directors may be personally liable for improperly approving them. Emerald Partners, 726 A.2d at 1215. Further, “good faith” is one of the triad of a director’s fiduciary duties, Cede & Co., 634 A.2d at 361, and the statute does not permit exculpation for its breach. This has focused the attention of the plaintiff’s bar, and therefore of the courts, on the meaning of good faith (although more at- tention has not resulted in greater clarity).

Finally, the Delaware Supreme Court recently held that exculpatory charter provisions are not self-executing; the burden of proof is on the director claiming protection to show that the challenged conduct is entitled to it. Emerald Partners, 726 A.2d at 1223-24. Since two of the major components of the settlement value of any case are the length of time it will take to get rid of it and legal uncertainty as to the outcome, the price of settlement in Delaware has presumably gone up.

It will be interesting to see if the Delaware legislature responds to this. Corporations are now the only business form in Delaware for which fiduciary duties are mandatory, so the legislature is obviously not enamored of them. On the other hand, Delaware has some in- terest in maintaining the incomes of its litigators. The line between too much litigation and too little has to be drawn with a careful hand.

80. Such shareholder approval was readily forthcoming, proving either that share- holders are rational and did not want managers to be overly risk-averse, or that manage- ment control of the proxy machinery proved an insuperable barrier to free shareholder choice.

81. James J. Hanks, Jr., Evaluating Recent State Legislation On Director and Officer Liability Limitation and Indemnification, 43 BUS. LAW. 1207 (1988).

82. The statute does not preclude non-monetary equitable relief.

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