August 11, 2005
Is Van Gorkom dead?
Posted by Account Deleted

Steve Bainbridge, responding to my earlier post, says no.

Maybe, to paraphrase a great American, that depends on what the meaning of "dead" is.  The rule -- that a duty of care is always a prerequisite to the business judgment rule -- is plainly gone, at least in 102(b)(7) cases. 

What about limiting the rule to the sort of major transaction involved in Van Gorkom, as Steve suggests?  Still dead. Chancellor Chandler implies that, at least in a 102(b)(7) case, Disney-type abdication would have been enough for liability in this situation.

So, perhaps, good faith -- conscious disregard without conflict of interest  -- is still alive for that narrow category of cases. 

But Van Gorkom did not involve conscious disregard.  It did not involve a "supine" board's failure to pay attention to one of the highest-profile employment contracts in the history of business.  It involved nailing an experienced, sophisticated board for selling the company for 40% more than the current market price.  Would that happen again, at least in a 102(b)(7) situation?  No way.  No earthly way, unless, as I do not believe will happen, the Supreme Court reverses in Disney.

So does Van Gorkom have any kind of a pulse?  Maybe, in the following limited sense:  No case ever dies in Delaware.  Often cases are preserved as alternative tools the court can draw from as the facts and times require.  At worst, cases go into suspended animation, to be dug up for freakish facts when none of the cases in current "inventory" are useful. 

That's where I think Van Gorkom is going.  Not six feet under, but into a sort of cryogenic state. We might see it walking around in a kind a Frankenstein, Living Dead-ish gait at some point.  An imitation of life. But still dead.

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