Opinion ID: 1535019
Heading Depth: 2
Heading Rank: 1

Heading: The Exculpatory Charter Provision Was Properly Before the Court of Chancery

Text: The threshold inquiry is whether Article TWELFTH of the Frederick's certificate of incorporation was properly before the Court of Chancery. In their brief in support of their motion to dismiss in the Court of Chancery, the director defendants interposed the Section 102(b)(7) charter provision as a bar to plaintiffs' claims based on an alleged breach of the duty of care. [46] This provision, which appeared for the first time in the director defendants' brief in the Court of Chancery, was placed before the court without any authentication or supporting affidavit. The existence and authenticity of this provision was never questioned by plaintiffs, however. The trial court therefore tacitly accepted it as authentic without defendants formally asking the court to take judicial notice of its existence, which could easily be found in the public files in the Secretary of State's office and could properly be noticed judicially by the court. [47] Because the charter provision is not found within the four corners of the complaint, it is a matter outside the pleading. Accordingly, on a Rule 12(b)(6) motion to dismiss, if matters outside the pleading are presented to and not excluded by the Court the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given a reasonable opportunity to present all material made pertinent to such a motion by Rule 56. [48] Under Rule 56 in this context, there may be an opportunity for either side to submit affidavits or engage in discovery [49] to explore the matter outside the pleadings [that had been] ... presented to and not excluded by the Court. [50] Simply because a matter outside the pleading has been presented under Rule 12(b)(6) and thereby must be treated as one for summary judgment with all parties ... given a reasonable opportunity to present all material made pertinent to such a motion by Rule 56, [51] it does not follow that the floodgates of discovery have to be opened. The Rule 56 opportunity to present affidavits or engage in discovery is not absolute. It is necessarily circumscribed by the discretion of the trial court in determining the scope of the matters outside the pleading that had been presented in connection with the Rule 12(b)(6) motion. Indeed, plaintiffs here do not contend that simply because defendants invoked the Section 102(b)(7) charter provision they are thereby invited to go on a fishing expedition. Accordingly, when matters outside the pleading  such as a Section 102(b)(7) charter provision  are presented, the trial court should carefully limit the discovery sought to a scope that is coextensive with the issue necessary to resolve the motion. [52] Here, there was apparently no discovery issue. [53] When the issue is confined to the legal effect of a Section 102(b)(7) charter provision, it is difficult to envision what discovery would be implicated. To be sure, in a due care case where a Section 102(b)(7) charter provision is invoked, a plaintiff could theoretically contest the validity of the charter provision. In such a case, the plaintiff must have a proper basis [54] to claim that the Section 102(b)(7) charter provision presented by the defendants on the Rule 12(b)(6) motion is not authentic, was improperly adopted by the stockholders, or the like. Plaintiffs make no such claim here. Although plaintiffs contend that under Emerald Partners [55] the burden is on the defendants to produce evidence to support a Section 102(b)(7) defense, they do not contest the existence or authenticity of Frederick's 102(b)(7) charter provision. There being no Rule 56 avenue of discovery or affidavits that would be relevant to the narrow issue before the trial court in this case, we conclude that the plaintiffs were not deprived of any important procedural right arising from the fact that the trial court considered Frederick's 102(b)(7) charter exculpation provision in connection with the Rule 12(b)(6) motion to dismiss. Although it would have been preferable for the trial court to have observed the precise provisions of the rules and to have expressly treated the motion as one for summary judgment once the Section 102(b)(7) charter provision was interposed by the director defendants, we find no reversible error in failing to do so. The provision was properly before the Court of Chancery in deciding on the director defendants' motion to dismiss. As guidance for future cases, we observe that there are several methods available to the defense to raise and argue the applicability of the bar of a Section 102(b)(7) charter provision to a due care claim. The Section 102(b)(7) bar may be raised on a Rule 12(b)(6) motion to dismiss (with or without the filing of an answer), a motion for judgment on the pleadings (after filing an answer), [56] or a motion for summary judgment (or partial summary judgment) under Rule 56 after an answer, with or without supporting affidavits. In the case of a Rule 12(b)(6) motion, as here, if the Section 102(b)(7) charter provision is raised for the first time in the motion or brief in support of the motion, it is a matter outside the pleading. If not excluded by the court, the existence of such matter means that the motion will be converted, by clear force of the pleading rules, into a motion for summary judgment under Rule 56 and should be handled as we have noted above.