Stone v. Ritter and the Expanding Duty of Loyalty

October 31, 2011

Stone v. Ritter is the first post-Disney Delaware Supreme Court case articulating the doctrine of good faith. Taking Stone v. Ritter as a point of departure, we propose a way of understanding how good faith fits within the broader context of Delaware fiduciary duty cases. We see potential cases as arrayed along a continuum from traditional care cases to traditional loyalty cases. In between are cases where director or officer objectivity is impaired, but less so than in traditional loyalty cases. The emerging law of good faith helps courts deal with such cases. Particular clusters of cases develop detailed guidance for certain recurring problematic situations—the adoption of takeover defenses, board responses to shareholder derivative suits, the approval of executive compensation, and so on. At the same time, a more general doctrine of good faith is emerging, one that provides an expressive handle on which to ground future holdings and encourage the development of appropriate norms.

December 2009

No. 3

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