THE CONCEPT OF GOOD FAITH AND THREATENED EROSION OF SECTION 102(B)(7) PROTECTIONS.
The Disney III opinion caused concern not seen since Van Gorkom. A legally
viable claim for breach of an amorphous concept such as “good faith” threatened
the security provided by a Section 102(b)(7) charter provision and, perhaps,
implicated common exclusions in directors’ and officers’ insurance policies. No
longer was it sufficient simply to be disinterested and independent because an
adequately pled good faith claim, subject only to the requirements of Rule 11,
would allow a claim for monetary damages that would survive a motion to
To be fair, the arguable erosion of Section 102(b)(7) protection began before Disney III.
In Malpiede v. Townson, 780 A.2d 1075, 1094 (Del. 2001), the Delaware Supreme Court held that, as a matter of law, Section 102(b)(7) bars a complaint at the motion to dismiss stage only if it states “an unambiguous, residual” breach of the duty of care claim and nothing else.
In Emerald Partners v. Berlin, 787 A.2d 85 (Del. 2001), the Delaware Supreme Court held that the exculpatory effect of a Section 102(b)(7) provision only becomes a proper focus of judicial scrutiny after the directors’ potential personal liability for the payment of monetary damages for breach of fiduciary duty is established. While not “erosion” per se, this decision has the practical procedural effect of subjecting directors, in some instances, to costly discovery prior to being exonerated from paying damages.