Opinion ID: 2345086
Heading Depth: 2
Heading Rank: 3

Heading: The Scope and Effect of Section 2-405.1(g)

Text: The Court of Special Appeals concluded that § 2-405.1(g), which provides that [n]othing in this section creates a duty of any director of a corporation enforceable otherwise than by the corporation or in the right of the corporation, barred Petitioners' direct claim and that the statute contemplated no forms of action for breach of fiduciary duties enforceable other than derivatively. That court also found that the statute supersedes the common law with respect to claims by shareholders against directors for breach of their fiduciary duties. Petitioners contend that subsection (g) was intended solely to provide a board of directors with additional protections in defending against an unsolicited takeover where the corporation is not for sale and was not designed to affect or eliminate the duties of corporate directors owed directly to shareholders once the decision is made voluntarily to sell the company. They argue that subsection (g) merely states that, when a duty owed to the corporation under § 2-405.1 is breached, that breach may be enforced only by the corporation or in the right of the corporation. Board Respondents counter that subsection (g) plainly provides that claims for breach of fiduciary duty against directors may be brought only by the corporation or derivatively on its behalf. The cardinal rule of statutory interpretation is to ascertain and carry out the true intention of the Legislature. Reichs Ford, 388 Md. at 517, 880 A.2d at 316; W. Corr. Inst. v. Geiger, 371 Md. 125, 140, 807 A.2d 32, 41 (2002). We look first to the language of the statute itself and its stated intention, according the words of the statute their ordinary and natural significance. Reichs Ford, 388 Md. at 517, 880 A.2d at 316; Geiger, 371 Md. at 141, 807 A.2d at 41-42. Where the words of a statute are plain and free from ambiguity, and express a definite and simple meaning, courts do not normally look beyond the words to determine legislative intent. Id. at 141, 807 A.2d at 42. In conducting statutory interpretation, [w]e neither add nor delete words to a clear and unambiguous statute to give it a meaning not reflected by the words the Legislature used or engage in forced or subtle interpretation in an attempt to extend or limit the statute's meaning. BAA, PLC v. Acacia Mut. Life Ins. Co., 400 Md. 136, 151, 929 A.2d 1, 10 (2007) (quoting Taylor v. NationsBank, N.A., 365 Md. 166, 181, 776 A.2d 645, 654 (2001)). The statute is to be read so that no word, phrase, clause, or sentence is rendered meaningless. Reichs Ford, 388 Md. at 517, 880 A.2d at 316. Where a statute is plainly susceptible of more than one meaning and thus contains an ambiguity, however, courts consider not only the literal or usual meaning of the words, but also their meaning and effect in light of the setting, the objectives and purpose of the enactment. Romm, 340 Md. at 693, 668 A.2d at 2. In construing statutory language, we seek to avoid results which are illogical, unreasonable, or inconsistent with common sense. Id. According to our reading, the language of subsection (g), which states that [n]othing in this section creates a duty of any director of a corporation enforceable otherwise than by the corporation or in the right of the corporation, plainly means that, to the extent § 2-405.1 creates duties on directors such as the duty of care contained in § 2-405.1(a), those duties are enforceable only by the corporation or through a shareholders' derivative action. The language of the statute makes no mention of barring direct shareholder actions against directors based on duties created other than by § 2-405.1, such as the fiduciary duties of candor and maximization of shareholder value discussed infra. See § 2-405.2 (The charter of the corporation may include any provision expanding or limiting the liability of its directors and officers to the corporation or its stockholders ....) (emphasis added). Thus, based on the plain language of § 2-405.1(g), we hold that the subsection does not bar direct shareholder actions where such actions are based on duties imposed or authorized otherwise than by § 2-405.1. For the sake of testing the validity of our construction, we note that evidence from the legislative history of the 1999 amendments explicitly states that the Legislature, in adding subsection (g), sought to strengthen Maryland's laws relating to unsolicited takeovers of corporations and real estate investment trusts. Bill Analysis of S.B. 169 (1999); Senate Judicial Proceedings Committee Report of Feb. 25, 1999 (noting that the bill gives Maryland corporations and real estate investment trusts (REITs) additional tools to avoid unwelcome takeovers as they occur today). The short title of S.B. 169 was Corporations and Real Estate Investment Trusts-Unsolicited Takeovers. More specifically, the amendments made clear that the standard of care for directors did not require them to accept, recommend, or even respond to unsolicited takeover bids, and that a director's failure to act solely because of the amount of consideration offered to stockholders would not expose that director to liability. Additionally, the amendments state that actions of directors relating to acquisitions, namely, implementing defensive mechanisms used to frustrate or prevent hostile takeovers, are not subject to a higher duty or greater scrutiny than any other acts of directors. The entirety of the legislative history of the 1999 amendments to § 2-405.1 suggest that subsections (f) and (g) were enacted to address problems presented in hostile takeovers of Maryland corporations. Subsections (f) and (g) were not intended to remove the ability of shareholders to bring direct claims for breach of fiduciary duty in situations where there is an imminent voluntary change of corporate control or ownership, rather than a hostile takeover. To the contrary, the legislative history states that (f) and (g) were meant to reject in Maryland the heightened scrutiny imposed on directors of Delaware corporations in hostile takeover situations by the Delaware Supreme Court in Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985), a relatively rare rejection in Maryland of Delaware's acknowledged leadership in developing a coherent body of corporate law to which we and many other states ordinarily look for guidance. [15] Board Respondents contend anticipatorily that this reading of § 2-405.1 is at odds with the provisions of § 2-405.1(c) and § 5-417 of the Courts and Judicial Proceedings Article, the latter of which states that [a] person who performs the duties of that person in accordance with the standard provided under § 2-405.1 of the Corporations and Associations Article has no liability by reason of being or having been a director of a corporation. Md.Code Ann., Cts. & Jud. Proc. § 5-417 (1974, 2006 Repl.Vol.). As noted earlier, however, the standard of care provided by § 2-405.1(a), which otherwise would immunize directorial actions from judicial scrutiny, is inapplicable to decisions made outside the purely managerial context, such as negotiating the price shareholders will receive in a cash-out merger transaction. Thus, while § 2-405.1(c) and § 5-417 of the Courts and Judicial Proceedings Article provide for liability to be limited by the business judgment rule as codified in § 2-405.1(a), those provisions do not immunize directors from liability for breach of their common law duties of candor and maximization of shareholder value once the threshold decision to sell the corporation is made. We hold, therefore, that the Court of Special Appeals erred in holding that § 2-405.1(g) bars all shareholders' direct suits. In the context of a cash-out merger transaction, where the decision to sell the corporation already has been made by the Board of Directors, those directors owe common law fiduciary duties of candor and maximization of shareholder value directly to the shareholders themselves, and claims for breach of those duties may be brought directly, despite the provisions of § 2-405.1(g). Thus, we hold that Petitioners may proceed in a direct action against Board Respondents based on their claims of breach of fiduciary duties owed directly to them by Board Respondents.