Opinion ID: 1424871
Heading Depth: 1
Heading Rank: 5

Heading: Director Communications Shareholder Reliance Justified

Text: The shareholder constituents of a Delaware corporation are entitled to rely upon their elected directors to discharge their fiduciary duties at all times. Whenever directors communicate publicly or directly with shareholders about the corporation's affairs, with or without a request for shareholder action, directors have a fiduciary duty to shareholders to exercise due care, good faith and loyalty. It follows a fortiori that when directors communicate publicly or directly with shareholders about corporate matters the sine qua non of directors' fiduciary duty to shareholders is honesty. [17] According to the appellants, the focus of the fiduciary duty of disclosure is to protect shareholders as the beneficiaries of all material information disseminated by the directors. The duty of disclosure is, and always has been, a specific application of the general fiduciary duty owed by directors. The duty of disclosure obligates directors to provide the stockholders with accurate and complete information material to a transaction or other corporate event that is being presented to them for action. The issue in this case is not whether Mercury's directors breached their duty of disclosure. It is whether they breached their more general fiduciary duty of loyalty and good faith by knowingly disseminating to the stockholders false information about the financial condition of the company. The directors' fiduciary duties include the duty to deal with their stockholders honestly. Shareholders are entitled to rely upon the truthfulness of all information disseminated to them by the directors they elect to manage the corporate enterprise. [18] Delaware directors disseminate information in at least three contexts: public statements made to the market, including shareholders; statements informing shareholders about the affairs of the corporation without a request for shareholder action; and, statements to shareholders in conjunction with a request for shareholder action. Inaccurate information in these contexts may be the result of a violation of the fiduciary duties of care, loyalty or good faith. We will examine the remedies that are available to shareholders for misrepresentations in each of these three contexts by the directors of a Delaware corporation.