I'm pondering the relationship between the business judgment rule and Section 141(e) of the Delaware General Corporation Law. As I understand it, the business judgment rule is a broader defense than is 141(e). In other words, it is possible for directors to be unable to rely on an expert opinion, thus losing the statutory defense, but still have made a sufficiently informed to get BJR protection. But is the converse true? Imagine a board that was grossly negligent in gather information, but did get expert advice from a properly chosen expert and the board made sufficient inquiry of that expert to satisfy the requirement that they rely in good faith. Would the board be protected by 141(e) even though the business judgment rule would not protect them? Logically, it would seem that the answer must be yes if 141(e) is to have independent role, but the case law I've found provides no clear answer.
Thoughts?
Bill Klein sent along these thoughts:
I find the question puzzling by virtue of its lack of concreteness. It seems to me the question must posit a situation in which the expert opinion covers an aspect of the matter to be decided that is significant but still narrower than the entire matter. For example, suppose that the question is whether, and at what price, to sell a subsidiary and that the major asset of the subsidiary is an office building. The board is protected in reasonably relying on the opinion of a properly chosen expert as to the value of the building but could be exposed to liability for ignoring other relevant factors (e.g. tax effects). The useful function and effect of 141(e) is that the value of the building is not a basis for liability; it drops out of the case.
But doesn't that read "fully" out of the statute?
Joel Feuer sent along a link to this Sadden client memo, which posits:
Section 141(e) protects the conscientious director’s pocket book. And narrowly interpreting “fully protected” permits judicial monitoring of director decision-making regarding certain important corporate circumstances, where a higher standard of review than the less stringent traditional business judgment standard should apply because those circumstances place inherent pressures on director motivations and conduct. If accomplishing this requires burdening conscientious directors with the risk, and on occasion the reality, of “no fault fiduciary duty breach,” it’s a price worth paying, isn’t it?
I, for one, do not think so. In any event, it is a question worth debating. Directors have a genuine interest in their reputations — as do the companies they serve. And Delaware also has an important interest in not having directors who have acted conscientiously, in reliance on advice and information on which they are statutorily permitted to rely, be found to have committed the ultimate directorial bad act — a breach of fiduciary duty — based on the misconduct of experts on which the directors were entitled to rely. Delaware should encourage the service of conscientious directors. The best way to do so is by really “fully protecting” them — including from a finding of fiduciary duty breach when they act conscientiously in accordance with the requirements of §141(e), and from the reputational stain such a finding would represent.