Several recent federal cases also outline how Section 102(b)(7) protections have been eroded by the expansion of the good faith concept to cover inaction by the board that previously might have been thought to fall solely under the concept of due care and to not implicate the concept of good faith.
In McCall v. Scott, 250 F.3d 997 (6th Cir. 2001), the Sixth Circuit, applying its understanding of Delaware law, held that a complaint alleging “conscious disregard of known risks” alleged action that would not be protected under the company’s Section 102(b)(7) provision and excused demand.
In addition, the Court stated, “while it is true that duty of care claims alleging only grossly negligent conduct are precluded by a § 102(b)(7) waiver provision, it appears that duty of care claims based on reckless or intentional misconduct are not.” 250 F.3d at
This legal conclusion went beyond any existing holding of
the Delaware Courts by equating intentional misconduct (which is
an explicit exception to exculpation in Section 102(b)(7)) with
recklessness (which is not).
Noting that most claims in which reckless or intentional
misconduct are alleged involve breaches of the duty of loyalty or
allegations of a lack of good faith, the Court construed the
complaint as alleging that the directors did not act in good faith for