Trade Publication Article

Amendments to the DGCL Permit Officer Exculpation

Zeberkiewicz, John Mark, Greco, Robert B

2022

Overview

In 2003, however, in the wake of a series of corporate scandals involving Enron, Worldcom and others-and that animated the adoption of the Sarbanes-Oxley Act-Delaware's consent-to-jurisdiction statute was amended to cover \"C-suite\" officers.6 A contemporaneous summary of the amendment to the consent-to-jurisdiction statute observed: Because of enhanced requirements for independent director representation on public company boards of directors, it is likely that fewer senior officers will also serve as directors. [...]had Section 3114 not been amended, the ability to obtain personal jurisdiction in Delaware over some of the most significant participants in corporate governance would have been impaired. The two cases that precipitated the change in the landscape were In re Trulia, Inc. Stockholder Litigation,9 where the Court of Chancery effectively shut down the practice of so-called \"disclosure only\" settlements (which would occur where the stockholder plaintiffs would obtain a relatively nominal settlement payment in exchange for the securing revisions to the proxy statement to correct quibble-style alleged omissions and would grant a blanket release for those claims),10 and Corwin v. KKR Financial Holdings LLC,11 where the Delaware Supreme Court affirmed the Court of Chancery's holding that a fully-informed vote of disinterested stockholders had the effect of restoring the presumption of the business judgment rule to the board's decision to approve a merger, thereby resulting in the dismissal of so-called Revlon claims tested under the standard of enhanced scrutiny12 Although the Supreme Court's opinion in Corwin gave boards a potent weapon with which to dismiss merger litigation, it also provided stockholder plaintiffs a roadmap for pursuing claims beyond the stockholder vote. An exculpatory provision covering officers would not, however, prevent the board of directors from pursuing duty of care claims against officers in the name of the corporation, nor would it prevent stockholders from bringing derivative claims in which officers are alleged to have breached their duty of care. [...]Section 102(b)(7), as amended, recognizes the basic structure of the Delaware corporation- that directors are principally responsible for oversight of the corporation and the long-term best interests of stockholders, while officers are responsible for management of the corporation's day-to-day affairs.

• Publisher: Aspen Publishers, Inc
• Subject: Acquisitions & mergers / Boards of directors / Captive insurance / Case law / Consent / Corporate officers / Disclosure / Duty of care / Fiduciary responsibility / Jurisdiction / Negligence / Proxy statements / Public companies / Settlements & damages / Shareholder voting / State court decisions / Stockholders