Title

Good Faith in the World of Delaware Corporate Litigation: A Strategic Perspective on Recent Developments in Fiduciary Duty Law

Abstract

The Delaware Chancery’s new-found willingness to hold corporate directors accountable for breaching the duty of good faith has provoked widespread attention in both the business and legal communities. Legal practitioners and scholars recognize the novelty of Delaware’s recent good faith jurisprudence, as well as its potential to expose directors to gigantic personal damage awards, and in fact have published numerous articles that seek to delimit the boundaries of good faith conduct. But until now, most discussions of good faith as a fiduciary duty have approached the subject as an abstract measure of conduct, showing little regard for how a complaint alleging bad faith would fare in an actual Delaware case.

This article adopts a unique approach to good faith by viewing the subject from a litigation-based perspective. With an eye toward the practical effects of fiduciary duty jurisprudence, the paper follows the path of a shareholder lawsuit from injury to judgment, noting where good faith has combined with other state and federal developments to change the fortunes of plaintiff shareholders and defendant directors. I conclude that recent good faith jurisprudence has all but eliminated the possibility of dismissing many fiduciary duty suits on the pleadings, and has substantially reduced a defendant’s chances of prevailing at trial.

PLEASE DO NOT CITE WITHOUT THE AUTHOR'S PERMISSION. For permission to cite and other inquiries, please contact the author at ZKlughaupt@gibsondunn.com, or at (212)351-2367.

Once permission is granted, please cite as follows: Zachary S. Klughaupt, Good Faith in the World of Delaware Corporate Litigation: A Strategic Perspective on Recent Developments in Fiduciary Duty Law, 56 FED'N DEF. & CORP. COUNSEL. Q. (forthcoming, Spring 2006).

Disciplines

Business Organizations Law | Legal Profession | Litigation

Date of this Version

November 2005