Violations of the law and the duty of loyalty | Brian JM Quinn | August 20, 2013


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Violations of the law and the duty of loyalty

Chancellor Allen described the duty of loyalty as requiring directors to endeavor to “manage the corporation within the law, with due care and in a way intended to maximize the long run interests of shareholders.” TW Servs., Inc. v. SWT Acquisition Corp., C.A. Nos. 10427, 10298, 1989 WL 20290, at *7 (Del. Ch. Mar. 2, 1989)

Metro Commc’n Corp. BVI v. Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 131, 163–64 (Del. Ch. 2004) (holding that if directors engaged in unlawful bribery for the purpose of helping the corporation obtain governmental permits, they had violated their “duty of loyalty” and further stating that “[u]nder Delaware law, a fiduciary may not choose to manage an entity in an illegal fashion, even if the fiduciary believes that the illegal activity will result in profits for the entity”)

Guttman v. Huang, 823 A.2d 492, 506 (Del. Ch. 2003) (“[O]ne cannot act loyally as a corporate director by causing the corporation to violate the positive laws it is obliged to obey.”)

Miller v. Am. Tel. & Tel. Co., 507 F.2d 759, 762 (3d Cir. 1974) (“[D]irectors must be restrained from engaging in activities which are against public policy.”)

Roth v. Robertson, 118 N.Y.S. 351, 353 (N.Y. Gen. Term 1909) (“Where the directors and officers of a corporation engage in ultra vires transactions [illegal acts], and they cause loss to the corporation, they must be held jointly and severally liable for such damages.”)

“Directors “have no authority knowingly to cause the corporation to become a rogue, exposing the corporation to penalties from criminal and civil regulators.” Desimone, 924 A.2d at 934.


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August 26, 2013

corporate loyalty

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Brian JM Quinn

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