Holly M. Barbera
In Malone v. Brincat, the Delaware Supreme Court announced that, under Delaware law, stockholders may state a cause of action arising out of directors’ misdisclosures made in the absence of a request for stockholder action.
This note re-emphasizes the court’s holding that such claims are not made under any extension of the duty of disclosure. Rather they are based on corporate directors’ general – and ever present -fiduciary duties of care, loyalty and good faith This note explains that Malone did not produce a limitless new disclosure rule. As discussed, traditional concepts of materiality and damages are still relevant to whether a stockholder can state a cognizable claim for fiduciary misdisclosures. In addition, this note argues that in one narrow instance, a rule for an affirmative obligation to disclose in the absence of requested stockholder action can be extracted from Malone. This rule is necessary, justified, and compatible with the coexistence of federal securities and Delaware state laws.
Through examining the limits and requirements of such a rule, this note argues that a director’s mental state must be a critical component. An examination ofthis component concludes that corporate charter provisions, which attempt to shield directors from personal liability, will not be available where a stockholder has made a successful claim for damages arising out of misdisclosures made in the absence of a request for stockholder action.