This blog, written by Thomas E. Rutledge, focuses primarily on business entity law in Kentucky. Postings on contract law, contractual and statutory construction, and the entity law of other jurisdictions appear as well. There may as well be some random discussions of classical, medieval and renaissance history.
Tuesday, November 25, 2014
No Exculpation for Those Who Aid & Abet a Breach of the Duty of Care
Exculpation for Those Who Aid & Abet a Breach of the Duty of Care
recent decision from the Delaware Court of Chancery has highlighted a curious
consequence of a 102(b)(7) exculpation of director liability for breach of the
duty of care, namely that there can still be aiding and abetting
liability.In re Nine Systems Corporation Shareholders Litigation, C.A. No.
3940-VCN (Del. Ch. Sept. 4, 2014).
the course of the opinion the court noted that directors may be held liable for
breach of the duty of loyalty, but:
whose unfair conduct implicated solely the duty of care may be exculpated from
liability for monetary damages if the corporation’s certificate of
incorporative includes an exculpatory provision pursuant to 8 De. C. §
Exculpation under 102(b)(7) is not
the same as there was no violation of the duty of care; it is only a statement
that the directors involved are not personally liable for the breach.
reason, persons who may be charged with having aided and abetted the director’s
breach of duty may still be held liable for the consequences thereof.
[102(b)(7)] does not exculpate those who aided and abetted a breach of
fiduciary duty, even if the underlying breach is of solely the duty of care.
there stands the dichotomy: the director who violated the duty of care is not
responsible for having done so, but the advisor who aided and abetted that
failure may be held liable.