The Delaware Supreme Court has, for the first time, explicitly held that officers of a Delaware corporation owe the same fiduciary duties to the corporation as do its directors.
Minority shareholders alleged that officers of First Niles Financial, Inc., a Delaware corporation and federally chartered bank, sabotaged the due diligence portion of an active sale process of First Niles. The sales process did not result in a board approved transaction, and First Niles was later recapitalized to eliminate smaller stockholders' voting rights. The plaintiffs alleged breaches of fiduciary duties by both directors and officers of First Niles, in the form of disclosure violations in connection with the recapitalization failing to properly conduct the sales process and effecting the recapitalization.
Although the defendant officers and directors successfully moved to dismiss the complaint in the Chancery Court, the Supreme Court reversed. On the issue of whether the plaintiffs had pled sufficiently to state a claim against the officers, the Court held that the issue of whether “officers owe fiduciary duties identical to those of directors?has been characterized as a matter of first impression for this Court. In the past, we have implied that officers of Delaware corporations, like directors, owe fiduciary duties of care and loyalty, and that the fiduciary duties of officers are the same as those of directors. We now explicitly so hold.” The Supreme Court concluded that the complaint alleged sufficiently detailed acts of wrongdoing by the officer defendants to state a claim that they breached their fiduciary duties.
Interestingly, the Court acknowledged in a footnote that the consequences of a fiduciary breach by an officer might not be the same as for a director. For example, the Delaware corporate code permits a corporation, in its certificate of incorporation, to exculpate its directors from monetary liability for certain adjudicated breaches of the duty of care. However, this charter-based protection is not permitted by statute to be extended to officers. Accordingly, until such time as the statute changes, officers of a Delaware corporation would be well served to request an indemnification agreement to contractually provide them with the same protections. (Gantler v. Stephens, 2009 WL 188828 (Del.Supr. January 27, 2009))