Opinion ID: 1424871
Heading Depth: 1
Heading Rank: 6

Heading: State Fiduciary Disclosure Duty Shareholder Remedy In Action Requested Context

Text: In the absence of a request for stockholder action, the Delaware General Corporation Law does not require directors to provide shareholders with information concerning the finances or affairs of the corporation. [19] Even when shareholder action is sought, the provisions in the General Corporation Law requiring notice to the shareholders of the proposed action do not require the directors to convey substantive information beyond a statutory minimum. [20] Consequently, in the context of a request for shareholder action, the protection afforded by Delaware law is a judicially recognized equitable cause of action by shareholders against directors. The fiduciary duty of directors in connection with disclosure violations in Delaware jurisprudence was restated in Lynch v. Vickers Energy Corp., Del.Supr., 383 A.2d 278 (1978). In Lynch, this Court held that, in making a tender offer to acquire the stock of the minority stockholders, a majority stockholder owed a fiduciary duty ... which required `complete candor' in disclosing fully `all the facts and circumstances surrounding the' tender offer. [21] In Stroud v. Grace , we noted that the language of our jurisprudence should be clarified to the extent that candor requires no more than the duty to disclose all material facts when seeking stockholder action. [22] An article by Professor Lawrence Hamermesh [23] includes an excellent historical summary of the content, context, and parameters of the law of disclosure, as it has been developed in a series of decisions during the last two decades. [24] The duty of directors to observe proper disclosure requirements derives from the combination of the fiduciary duties of care, loyalty and good faith. [25] The plaintiffs contend that, because directors fiduciary responsibilities are not intermittent duties, there is no reason why the duty of disclosure should not be implicated in every public communication by a corporate board of directors. The directors of a Delaware corporation are required to disclose fully and fairly all material information within the board's control when it seeks shareholder action. [26] When the directors disseminate information to stockholders when no stockholder action is sought, the fiduciary duties of care, loyalty and good faith apply. Dissemination of false information could violate one or more of those duties. An action for a breach of fiduciary duty arising out of disclosure violations in connection with a request for stockholder action does not include the elements of reliance, causation and actual quantifiable monetary damages. [27] Instead, such actions require the challenged disclosure to have a connection to the request for shareholder action. The essential inquiry in such an action is whether the alleged omission or misrepresentation is material. [28] Materiality is determined with respect to the shareholder action being sought. [29] The directors' duty to disclose all available material information in connection with a request for shareholder action must be balanced against its concomitant duty to protect the corporate enterprise, in particular, by keeping certain financial information confidential. [30] Directors are required to provide shareholders with all information that is material to the action being requested and to provide a balanced, truthful account of all matters disclosed in the communications with shareholders. [31] Accordingly, directors have definitive guidance in discharging their fiduciary duty by an analysis of the factual circumstances relating to the specific shareholder action being requested and an inquiry into the potential for deception or misinformation. [32]