August 10, 2005
What is deliberate indifference?
Posted by S_Griffith

An interesting aspect of good faith/ bad faith analysis is how to do it by proxy. That is, if you can’t see into the hearts of the board, how can you decide whether they acted with deliberate indifference? One way is to look at how long they thought about their decision. This method was employed most explicitly in the Elkins case, where the court was plainly wary of the way such analyses of process can slide into analyses of substance:

[Plaintiffs’] Counsel took the following position: “Now we're not saying if it was 20 minutes, it would have been okay or if it was 5 minutes, it wouldn't have been okay. Perhaps 5 or 10 minutes would have been sufficient if there had been some other involvement or discussion with the expert other than that very brief meeting.”

The Elkins court ultimately rejected this degree of parsing and chose instead to dismiss bad faith allegations where it found any evidence of deliberation, allowing them to proceed only where it found none. This binary analysis, sustaining bad faith claims only if there is zero deliberation, is necessary to avoid the situation where courts start establishing precedents for how much time boards must spend on each type of decision. Fundamentally, the decision about how much to deliberate is, like the decision to make bottles or bricks, a business decision protected by the business judgment rule.

All of this comes up again in today’s Disney opinion when the Chancellor, comparing the Disney board with the Trans Union board, addresses the amount of time the compensation committee spent on the Ovitz contract, deciding ultimately that it is “not insignificant” (153). In other words, only a truly insignificant amount of time will be evidence of deliberate indifference sufficient to support a bad faith claim. Otherwise, the decision of how much time to spend is up to the board and protected by the business judgment rule.

As rare as zero deliberation may be, a bottom line lesson of the opinion for practitioners is to pay close attention to board minutes. Footnote 539 will remind defense lawyers to make sure that board minutes are always robust and reflective of a careful and deliberative process. Equally, it will remind plaintiffs' lawyers where to look for evidence of a true lack of deliberation.

Disney, Forum: Disney | Bookmark

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