Opinion ID: 703999
Heading Depth: 4
Heading Rank: 1

Heading: in good faith;

Text: 66 (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and 67 (3) in a manner he reasonably believes to be in the best interests of the corporation. 68 Model Act Sec. 8.30. The business judgment rule contained in the Model Act, like Sec. 690, is based upon a director's good faith. By referring to an ordinarily prudent person and the director's reasonabl[e] belie[f] concerning the corporation's best interests, however, the Model Act makes clear that one of the ways in which a litigant may prove that a director did not exercise good faith is by showing that a director's decision is irrational, i.e., that the decision does not comport with what a reasonable person would do under similar circumstances. 69 Section 690, however, contains no reference to the reasonable person. In fact, the Virginia legislature expressly chose to reject the Model Act standard: 70 [Section 690], especially subsection A, is significantly different from the Model Act's treatment of the same subject in Sec. 8.30.... 71 .... 72 The term reasonable is intentionally not used in the standard. It thereby eliminates comparison of the conduct in question with the idealized standard and removes the question of how great a deviation from this idealized standard is acceptable. 73 Virginia Corporation Law with Commentaries and Rules 197-98 (1992 ed.) (Joint Bar Committee Commentary); see also Murphy, 20 U. Rich. L.Rev. at 108 (Under Sec. 690, [t]he trier of fact need only find good faith and determine whether the conduct in question was a product of the director's own business judgment of what is in the best interest of the corporation. The director's conduct or decision is not to be analyzed in the context of whether a reasonable man would have acted similarly.); id. (The statute ... may ... protect the utterly inept, but well-meaning, good faith director.). Directors' actions in Virginia are not to be judged for their reasonableness, and we, like the district court, reject Tyson's attempt to inject such a standard into Virginia law. We thus hold that the district court did not abuse its discretion in denying Tyson permission to discover the substantive content of the recommendations made to the WLR Board, because pursuant to the governing Virginia law, that information was not relevant under Federal Rule of Civil Procedure 26(b)(1). 3 74 In addition, we do not believe that the district court's ruling restricting discovery prevented Tyson from being able to determine whether the actions of the Board in the instant case were in good faith. As the district judge stated, 75 [t]he means of addressing good faith for Tyson must be in keeping with the procedural thrust of the statute. Neither the statute nor the Magistrate Judge's order would necessarily preclude, for instance, inquiry into the identity and qualifications of any sources of information or advice sought which bear on the decision reached, the circumstances surrounding selection of these sources, the general topics (but not the substance) of the information sought or imparted, whether advice was actually given, whether it was followed, and if not, what sources of information and advice were consulted to reach the decision in issue. In short, the statute permits inquiry into the procedural indicia of whether the directors resorted in good faith to an informed decisionmaking process. 76 WLR Foods, Inc. v. Tyson Foods, Inc., 857 F.Supp. 492, 494 (W.D.Va.1994). Tyson was given access to various records bearing on the way in which the WLR Board made decisions. The redacted copies of Board meetings, while they do not reveal the substantive advice given to the Board, make clear the subjects that were discussed at the Board meetings. Tyson knew when advisors were hired, and who those advisors were. Tyson discovered which issues the WLR Board considered in determining whether to reject Tyson's offer. In sum, under the district court's interpretation of Sec. 690, Tyson was given an opportunity to determine whether the WLR Board had acted in good faith. 77 The case of Sandberg v. Virginia Bankshares, Inc., 891 F.2d 1112 (4th Cir.1989), rev'd on other grounds, 501 U.S. 1083, 111 S.Ct. 2749, 115 L.Ed.2d 929 (1991), does not, as Tyson contends, dictate a contrary result. In Sandberg, we upheld a jury verdict finding that certain directors, in approving a merger, had failed to act in good faith under Sec. 690. The bank in that case retained no independent investment advisor in order to assess a fair value for its stock, and merely issued a two-sentence statement recommending acceptance of an offer. See id. at 1117. Although the directors had consulted an investment consultant and relied on an executive committee, we stated that 78 [t]he case against the directors is that they merely rubberstamped everything placed before them by Bankshares. The evidence fully supports a view that the directors exercised no independent judgment whatsoever with regard to the interests of the minority stockholders and consequently, was sufficient to support the jury's finding of lack of good faith. 79 Id. at 1123. 80 Tyson argues that if the court in Sandberg had restricted the jury's inquiry to the processes by which the directors made their decision, the jury would not have been able to make a finding that the directors had merely rubberstamped the information before them. However, as we stated above, we do not believe that it would be impossible for a jury to find that directors had merely rubberstamped a proposal if the jury had access to information regarding the advisors consulted by the directors, their qualifications, how they were selected, the general topics on which they advised, and whether the advice was followed. Thus, contrary to Tyson's assertions, access to the type of information that would be made available under our interpretation of Sec. 690 also would have permitted a finding of lack of good faith in Sandberg. 81 We find the district court's decision limiting discovery in the instant case to be a sound one under Virginia law. Knowledge of the substantive advice given to the WLR Board was not reasonably calculated to lead to a determination regarding good faith as defined in Sec. 690, and the district court acted within its discretion in limiting Tyson's access to that information.