The Supreme Court of Delaware in Gantler v. Stephens, No. 132, 2009 Del. LEXIS 33 (Del. Jan. 27, 2009) (unpublished decision) recently addressed the question of the fiduciary duties owed by corporate officers to shareholders. In Gantler, the court held that corporate officers owe the same fiduciary duties as those owed by corporate directors. Although a matter of first impression for the court, it acknowledged that it was following a long articulated principle of Delaware law that corporate officers owe fiduciary duties identical to those owed by corporate directors.

In Gantler, the court found that plaintiffs had alleged sufficient facts in response to a motion to dismiss to establish that the director defendants had acted disloyally and, therefore, rebutted the presumption of the business judgment rule. Likewise, the court also found that plaintiffs alleged sufficient facts to state a claim that the officer defendants breached their fiduciary duties. Specifically, the court found that one officer defendant, who was also a director, may have violated his duty of loyalty by failing to respond to a due diligence request and by failing to properly inform the board of the request thereby creating an inference that he was motivated by his own financial interest. The court found that it was reasonable to infer that a second officer aided and abetted the first officer's breach of loyalty by assisting in a "sabotage" of the due diligence process.

Although Gantler has settled any ambiguity concerning fiduciary duties owed by corporate officers, the most interesting aspect may be in footnote 37 of the court's opinion. In that footnote, the court noted that even if a corporate director and a corporate officer are found to have breached the same fiduciary duty, the consequences of that breach may not be the same. Pursuant to Delaware statute, 8 Del. C. § 102(b)(7), the shareholders of a corporation may approve the adoption of a provision in the corporation's certificate of incorporation exculpating its directors from liability for breach of their duty of care. The vast majority of Delaware corporations have taken advantage of that provision and include such exculpatory clauses in their certificates of incorporation. The statute as it is currently written, however, does not extend to officers. The court seems to hit the ball into the legislature's court by suggesting that it is "legislatively possible" to have a ".. statutory provision authorizing comparable exculpation of corporate officers."

As it stands currently, however, there is no such statutory provision permitting an exculpatory clause for officers to be included in a corporation's certificate of incorporation. Thus, corporate officers may be more exposed to liability for breach of the duty of care than the directors of a corporation. As a result, corporate officers, as well as directors, should be cognizant about whether their actions may expose them to liability.

Corporate officers are not left without defenses, however. The presumption of the business judgment rule can still provide some protection to claims of breach of fiduciary duty. Generally, absent any showing of self-dealing or self-interest, directors and officers who act on an informed basis are afforded the presumption that their business decisions were made in the best interests of the company. The business judgment rule is not a panacea, however, and a plaintiff may be able to rebut the presumption by showing self-dealing, improper motive or bad faith.

Corporate officers should also be mindful about making decisions when the corporation is nearing insolvency or in the "zone of insolvency." In addition to shareholders, some jurisdictions may find that directors and officers owe fiduciary duties to the corporation's creditors when the corporation is in the zone of insolvency. Other jurisdictions have held that directors and officers owe a duty to creditors once the corporation is insolvent.

The Gantler decision was handed down during a time when the business world is facing great financial turmoil and when many directors and officers have to make difficult financial decisions. It is becoming more common for companies to have to make risky financial decisions in order to keep the corporation in business. With many corporations having less cash flow due to tightening credit lines or difficulty securing loans, the question of fiduciary duties of directors and officers takes on a significant role, particularly if the corporation becomes insolvent. In particular, officers of Delaware corporations should be aware of the Gantler decision so as to be mindful that a corporation's exculpatory clause will not protect them for claims for breach of the duty of care as it may for directors of those same corporations.

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