fiduciary duty issues in m&a transactions - Jackson Walker LLP

agents unless the directors either participated in the act or had actual knowledgeof the act . . . . 48D. Fiduciary Duties in Delaware Cases.1. Loyalty.a. Conflicts of Interest.In Delaware, the duty of loyalty mandates “that there shall be no conflict between dutyand self-interest.” 49 It demands that the best interests of the corporation and its stockholders takeprecedence over any personal interest or bias of a director that is not shared by stockholdersgenerally. 50 The Delaware Court of Chancery has summarized the duty of loyalty as follows:Without intending to necessarily cover every case, it is possible to saybroadly that the duty of loyalty is transgressed when a corporate fiduciary,whether director, officer or controlling shareholder, uses his or her corporateoffice or, in the case of a controlling shareholder, control over corporatemachinery, to promote, advance or effectuate a transaction between thecorporation and such person (or an entity in which the fiduciary has a substantialeconomic interest, directly or indirectly) and that transaction is not substantivelyfair to the corporation. That is, breach of loyalty cases inevitably involveconflicting economic or other interests, even if only in the somewhat diluted formpresent in every ‘entrenchment’ case. 51Importantly, conflicts of interest do not per se result in a breach of the duty of loyalty.Rather, it is the manner in which an interested director handles a conflict and the processesinvoked to insure fairness to the corporation and its stockholders that will determine thepropriety of the director’s conduct and the validity of the particular transaction. Moreover, theDelaware courts have emphasized that only material personal interests or influences will imbue atransaction with duty of loyalty implications.The duty of loyalty may be implicated in connection with numerous types of corporatetransactions, including, for example, the following: contracts between the corporation anddirectors or entities in which directors have a material interest; management buyouts; dealings bya parent corporation with a subsidiary; corporate acquisitions and reorganizations in which theinterests of a controlling stockholder and the minority stockholders might diverge; usurpations ofcorporate opportunities; competition by directors or officers with the corporation; use ofcorporate office, property or information for purposes unrelated to the best interest of thecorporation; insider trading; and actions that have the purpose or practical effect of perpetuating48495051Id.Guth v. Loft, 5 A.2d 503, 510 (Del. 1939).Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (“Technicolor I”). See infra notes 198-205 andrelated text.Solash v. Telex Corp., 1988 WL 3587 at *7 (Del. Ch. Jan. 19, 1988). Some of the procedural safeguards typicallyinvoked to assure fairness in transactions involving Board conflicts of interest are discussed in more detail below, inconnection with the entire fairness standard of review.5446095v.112