Good Faith Business Judgment: A Theory of Rhetoric in Corporate Law Jurisprudence

This Article develops a theory of rhetoric in corporate law jurisprudence. It begins by examining a recent innovation in Delaware case law: the emerging principle of "good faith." Good faith is an old notion in law generally, but it offers to bring significant change to corporate law, including realignment of the business judgment rule and a shift in the traditional balance between the authority of boards and the accountability of boards to courts. This Article argues, however, that good faith functions as a rhetorical device rather than a substantive standard. That is, it operates as a speech act, a performance, as opposed to a careful method of analysis. To explain the sudden appearance of good faith, this Article articulates a model of corporate law rhetoric. Courts invent rhetorical Copyright © 2005 by Sean J. Griffith. t Associate Professor of Law, University of Connecticut School of Law. B.A., Sarah Lawrence College; J.D., Harvard Law School. For their comments on earlier drafts of this Article, thanks to Phillip Blumberg, Jean Braucher, Deborah DeMott, Gerry Faulhaber, Jill Fisch, Kent Greenfield, Lyman Johnson, Renee Jones, Alexandra Lahav, Patricia McCoy, Tom Morawetz, Jeremy Paul, Ed Rock, Jim Rogers, Carol Rose, Hillary Sale, Steve Thel, Chantal Thomas, Ben Zipursky, and to participants at workshops and presentations at the American Association of Law Schools annual meeting, the University of Arizona James E. Rogers College of Law, Boston College Law School, the University of Connecticut School of Law, Duke School of Law, Fordham Law School, and the University of Pennsylvania Law School. The viewpoints and any errors expressed herein are my own. HeinOnline -55 Duke L.J. 1 2005-2006 2 DUKE LAW JOURNAL [Vol. 55:1 devices to loosen corporate law doctrine and increase judicial review of board decisionmaking in response to scandals and other extralegal pressures operating upon the judiciary. These pressures stem largely from the twin threats of corporate migration and federal preemption, both of which imperil the primacy of the Delaware judiciary as a corporate lawmaker. In periods of crisis and scandal, the judiciary employs rhetorical devices to reduce these pressures, typically with the effect of increasing board accountability, only to return, once the pressure recedes, to a position of board deference. After finding several examples of this pattern in corporate law history, this Article argues, ultimately, that regular movement back and forth along the authority/accountability spectrum is an essential feature of corporate law jurisprudence and that understanding the rhetorical devices that permit this movement is necessary to complete any account of what corporate law is and how it works. TABLE OF CONTENTS Introduction 3 I. Good Faith in Corporate Law 9 A. The Background of Business Judgment 9 B. The Jurisprudence of Good Faith 16 1. D isney 16 2. E lkins 23 3. R eader's D igest 27 C. The Substance of Good Faith 29 I. Good Faith as a Rhetorical Device 34 A. Thaumatrope Analytics 34 1. Nested Oppositions, Co-Constitutive Categories, and Two-Fers 36 2. Care as Loyalty and Loyalty as Care 40 B . Crisis as Context 44 III. Flexibility and Constraint: A Theory of Corporate Law Rhetoric 53 A. Judicial Power and Judicial Constraint 54 B. Expansion and Contraction 58 1. The Watershed Year 59 2. The W aters R ecede 63 C. Uncharted Waters: Disney and Beyond 68 C onclusion 73 HeinOnline -55 Duke L.J. 2 2005-2006 GOOD FAITH BUSINESS JUDGMENT