Opinion ID: 1927508
Heading Depth: 1
Heading Rank: 4

Heading: Vicarious Liability of Bancorp Respondeat Superior

Text: Plaintiff also argues that Bancorp is vicariously liable for the actions of its directors under principles of respondeat superior. He contends that the directors of Bancorp were acting on its behalf when they solicited proxies in favor of the merger. Simply because the directors enjoy an exemption under the certificate of incorporation and 8 Del.C. § 102(b)(7), plaintiff contends that it does not necessarily follow that the corporate defendants benefit from the exemption. It is certainly true that a principal is liable for wrongs committed by its agents acting in the course of their agency. Fields v. Synthetic Ropes, Inc., Del.Supr., 215 A.2d 427, 432 (1965). Directors, in the ordinary course of their service as directors, do not act as agents of the corporation, however. See Restatement (Second) of Agency, § 14C (1958) (Neither the board of directors nor an individual director of a business is, as such, an agent of the corporation or its members.) An agent acts under the control of the principal. The board of directors of a corporation is charged with the ultimate responsibility to manage or direct the management of the business and affairs of the corporation. 8 Del.C. § 141(a). A board of directors, in fulfilling its fiduciary duty, controls the corporation, not vice versa. [15] It would be an analytical anomaly, therefore, to treat corporate directors as agents of the corporation when they are acting as fiduciaries of the stockholders in managing the business and affairs of the corporation. [16] Holding the corporation vicariously liable for the directors' breach of a fiduciary duty would be flatly inconsistent with the rationale of vicarious liability since it would shift the cost of the directors' breach from the directors to the corporation and hence to the shareholders, the class harmed by the breach. Radol v. Thomas, 6th Cir., 772 F.2d 244, 258-259 (1985). The fact that Bank of Boston or its subsidiaries will ultimately satisfy any vicarious liability imposed on Bancorp [17] should not obscure the fact that imposing vicarious liability here would lead to anomalous results in other cases. It would replicate the discredited notion of awarding damages against the directors followed by indemnification of the directors by the corporation. This result was considered and rejected during the drafting of section 102(b)(7). [18]