Is Good Faith Still Alive After Disney?
On October 5, 2006, the Delaware State Bar Association sponsored a symposium entitled "Good Faith After Disney: The Role of Good Faith in Organizational Relations in Delaware Business Entities." The speakers included Chief Justice Steele and Justice Jacobs of the Delaware Supreme Court, and Chancellor Chandler and Vice Chancellor Strine of the Delaware Court of Chancery. The participants discussed whether a separate fiduciary duty of good faith exists under Delaware law. This debate stemmed from footnote 112 of the Delaware Supreme Court's opinion affirming Disney in which the Court explained it would "not reach or otherwise address the issue of whether the fiduciary duty to act in good faith is a duty that, like the duties of care and loyalty, can serve as an independent basis for imposing liability upon corporate officers and directors." The speakers explained that the Court of Chancery could not ignore the Delaware Supreme Court's opinion in Caremark, in which a separate duty of good faith was addressed. Attempting to reconcile the Caremark decision, the Court of Chancery explained in footnote 463 of Disney that "[i]n the end, so long as the role of good faith is understood, it makes no difference whether the words 'fiduciary duty of' are placed in front of 'good faith,' because acts not in good faith (regardless of whether they might fall under the loyalty or care aspects of good faith) are in any event non-exculpable because they are disloyal to the corporation." The lesson? There is no clear majority as to whether there is a separate fiduciary duty of good faith under which directors may be held liable. It is, however, more likely that good faith is merely an extension of the fiduciary duty of loyalty. Because of this uncertainty, it is probably a mistake to seek liability solely based on an independent fiduciary duty of good faith. For now, stick with the basic fiduciary duties of care and loyalty and allege good faith as part of the duty of loyalty.