Dangerous liaisons: Corporate law, trust law, and interdoctrinal legal transplants

Northwestern University Law Review

Volumn 96, Issue 2, 2002, Pages 651-670

  Rock, Edward ^a   Wachter, Michael ^a  

^a NONE

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EID: 0040669868     PISSN: 00293571     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (95)

1. 488 A.2d 858 (Del. 1985).
2. RESTATEMENT OF TRUSTS § 174 (1935).
3. See, e.g., RESTATEMENT OF AGENCY §§ 379, 399, 401 (1933); FLOYD R. MECHEM, OUTLINES OF THE LAW OF AGENCY 360 (4th ed. 1952) (with citations)
4. See, e.g., RESTATEMENT OF AGENCY §§ 379, 399, 401 (1933); FLOYD R. MECHEM, OUTLINES OF THE LAW OF AGENCY 360 (4th ed. 1952) (with citations)
5. DENNIS J. BLOCK ET AL., THE BUSINESS JUDGMENT RULE: FIDUCIARY DUTIES OF CORPORATE DIRECTORS 52 (4th ed. Supp. 1994).
6. ALAN WATSON, LEGAL TRANSPLANTS: AN APPROACH TO COMPARATIVE LAW (1974).
7. DEL. CODE ANN. tit. 8, § 102(b)(7) (2000).
8. RESTATEMENT OF TRUSTS § 169 (1935).
9. Id. § 170.
10. Id. § 171.
11. Id. § 172.
12. Id. § 173.
13. Id. § 174.
14. Id. § 175.
15. Id. § 176.
16. Id. § 177.
17. Id. § 178.
18. Id. § 179.
19. Id. § 181.
20. Id. § 182.
21. Id. § 183.
22. Id. § 2.
23. Id. § 170(1).
24. Id. § 170(2).
25. Id. § 174.
26. Id. § 174 cmt. (a).
27. Id. § 205.
28. Id. § 205 illus. 1.
29. Id. § 205 illus. 4.
30. Id. § 206 cmt. (a).
31. Id. § 174.
32. RESTATEMENT OF AGENCY § 379(1) (1933).
33. Id. § 379 cmt. (c).
34. Id. at § 401.
35. See RESTATEMENT (SECOND) OF AGENCY §§ 379, 399, 401 (1958).
36. PAUL L. DAVIES, GOWER'S PRINCIPLES OF MODERN COMPANY LAW 598 (6th ed. 1997). See Chapters 2 and 3 for a very useful and concise summary of the history of corporate law, with useful citations.
37. See HERBERT HOVENKAMP, ENTERPRISE AND AMERICAN LAW 1836-1937, at 241-67 (1991).
38. 2 Atk. 400, 26 Eng. Rep. 642 (Ch. 1742).
39. 2 Atk. at 406, 26 Eng. Rep. at 645.
40. 141 U.S. 132 (1891).
41. Henry Ridgely Horsey, The Duty of Care Component of the Delaware Business Judgment Rule, DEL. J. CORP. L. 971, 974 (1994).
42. 25 N.Y.S.2d 667 (N.Y. Sup. Ct. 1940).
43. Id. at 677 (citations omitted).
44. Id.
45. Id. at 677-78 (citations omitted).
46. Joseph W. Bishop, Jr., Sitting Ducks and Decoy Ducks: New Trends in the Indemnification of Corporate Directors and Officers, 11 YALE L.J. 1078 (1968); Stuart R. Cohn, Demise of the Director's Duty of Care: Judicial Avoidance of Standards and Sanctions Through the Business Judgment Rule, 62 TEX. L. REV. 591 (1983); Richard B. Dyson, The Director's Liablity for Negligence, 40 IND. L. REV. 341 (1965).
47. Joseph W. Bishop, Jr., Sitting Ducks and Decoy Ducks: New Trends in the Indemnification of Corporate Directors and Officers, 11 YALE L.J. 1078 (1968); Stuart R. Cohn, Demise of the Director's Duty of Care: Judicial Avoidance of Standards and Sanctions Through the Business Judgment Rule, 62 TEX. L. REV. 591 (1983); Richard B. Dyson, The Director's Liablity for Negligence, 40 IND. L. REV. 341 (1965).
48. Joseph W. Bishop, Jr., Sitting Ducks and Decoy Ducks: New Trends in the Indemnification of Corporate Directors and Officers, 11 YALE L.J. 1078 (1968); Stuart R. Cohn, Demise of the Director's Duty of Care: Judicial Avoidance of Standards and Sanctions Through the Business Judgment Rule, 62 TEX. L. REV. 591 (1983); Richard B. Dyson, The Director's Liablity for Negligence, 40 IND. L. REV. 341 (1965).
49. 188 A.2d 125 (Del. 1963).
50. Horsey, supra note 40, at 982-83.
51. Graham, 188 A.2d at 130.
52. Gimbel v. Signal Cos., 316 A.2d 619 (Del. 1974); Penn Mart Realty Co. v. Becker, 298 A.2d 349 (Del. Ch. 1972); Kaplan v. Centex Corp., 284 A.2d 119 (Del. Ch. 1971). In Penn Mart Realty, this duty was explicitly based on trust law. Penn Mart, 298 A.2d at 351 (citing, inter alia, GEORGE G. BOGERT, TRUSTS AND TRUSTEES, § 901 (1977)).
53. Kaplan, 284 A.2d at 125-39.
54. Penn Mart, 298 A.2d at 352.
55. Gimbel, 316 A.2d at 618.
56. 473 A.2d 805 (Del. 1984).
57. Id. at 812.
58. For a perceptive critique of Delaware case law from this perspective, see Lyman Johnson, Rethinking Judicial Review of Director Care, 24 DEL. J. CORP. L. 787 (1999).
59. It has long been debated whether there is a difference between "negligence" and "gross negligence."
60. See, e.g., H. Lee Murphy, Firms Fortifying Board Defenses, CRAIN'S CHI. BUS., Apr. 20, 1987, at 1, available at 1987 WL 2312455; Frederick D. Lipman, Directors' Liabilities: Legislature Lends a Helping Hand, FOCUS (PA.), May 13, 1987, at 78, available at 1987 WL 2321149.
61. See, e.g., H. Lee Murphy, Firms Fortifying Board Defenses, CRAIN'S CHI. BUS., Apr. 20, 1987, at 1, available at 1987 WL 2312455; Frederick D. Lipman, Directors' Liabilities: Legislature Lends a Helping Hand, FOCUS (PA.), May 13, 1987, at 78, available at 1987 WL 2321149.
62. DEL. CODE ANN. tit 8, § 102(b)(7) (2000).
63. R. Franklin Balotti & Joseph Hinsey IV, Director Care, Conduct and Liability: The Model Business Corporation Act Solution, 56 BUS. LAW. 35 (2000).
64. Report of Committee on Corporate Laws: Changes in the Model Business Corporation Act, 30 BUS. LAW. 501, 502 (1975), quoted in Balotti & Hinsey, supra note 59, at 40.
65. Id. at 504.
66. Balotti & Hinsey, supra note 59, at 41.
67. Id. at 42-45.
68. Id.
69. MODEL BUS. CORP. ACT ANN. § 8.30 Official Commentary at 8-160 (3d ed. 1997), quoted in Balotti & Hinsey, supra note 59, at 46.
70. Balotti & Hinsey, supra note 59, at 47.
71. Id. at 48 (citing Melvin Aron Eisenberg, The Divergence of Standards of Conduct and Standards of Review in Corporate Law, 62 FORDHAM L. REV. 437 (1993)).
72. MODEL BUS. CORP. ACT ANN. § 8.30 (b).
73. Id. § 8.31(a)(2).
74. RESTATEMENT OF TRUSTS § 174 (1935).
75. RESTATEMENT OF AGENCY § 379(1) (1933).
76. WATSON, supra note 5.
77. See. e.g., In re The Barnes Found., 683 A.2d 894 (Pa. Super. Ct. 1996).
78. See, e.g., id.
79. For an extensive analysis of these points, see Edward B. Rock & Michael L. Wachter, Islands of Conscious Power: Law, Norms and the Self Governing Corporation, 149 U. PA. L. REV. 1619 (2001).
80. Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985).
81. For a fuller analysis, see Edward R. Rock & Michael L. Wachter, The Enforceability of Norms and the Employment Relationship, 144 U. PA. L. REV. 1913 (1996).
82. For a survey of the early cases, see Harold Marsh, Are Directors Trustees? Conflicts of Interest and Corporate Morality, 22 BUS. LAW. 35 (1960).
83. Id.
84. ROBERT CHARLES CLARK, CORPORATE LAW 161-62 (1986).
85. RESTATEMENT OF TRUSTS § 170 cmt. on Subsection (2).
86. Marsh, supra note 79, at 39-40.
87. Id.
88. See S. Samuel Arsht & Walter K. Stapleton, Delaware's New General Corporation Law: Substantive Changes, 23 BUS. LAW. 75, 75 (1967).
89. According to Arsht and Stapleton, the common law rule in effect prior to the enactment of section 144 was that a sufficient number of directors to constitute a quorum in themselves was required to approve an interested transaction. Id. at 81. The new rule modified the quorum requirement and provided for greater clarity by providing three actions that could be taken so that an interested transaction was not automatically void or voidable. Id.
90. See Cooke v. Oolie, 1997 Del. Ch. LEXIS 92, and cases discussed and cited therein.
91. Id.
92. Id.
93. CLARK, supra note 80, at 161-66.
94. Id. at 165-66.
95. Id. at 180-89.