What happened in smith v Van Gorkom?

Facts: In a class action against defendant Trans Union Corporation (“Trans Union”) and its board of directors, plaintiffs, who are shareholders of Trans Union, claimed that the approval of the cash-out merger of their corporation violated Del. Van Gorkom, Chairman and CEO of Trans Union, who struck the deal with Jay A.

What does the business Judgement rule encourage?

The business judgment rule protects companies from frivolous lawsuits by assuming that, unless proved otherwise, management is acting in the interests of the corporation and its stakeholders. The rule assumes that managers will not make optimal decisions all the time.

Who won Smith v Van gorkom?

On February 10, the stockholders of Trans Union approved the Pritzker merger proposal. Of the outstanding shares, 69.9% were voted in favor of the merger; 7.25% were voted against the merger; and 22.85% were not voted.

What is the US business judgment rule?

Overview. The business judgment rule is invoked in lawsuits when a director of a corporation takes an action that affects the corporation, and a plaintiff sues, alleging that the director violated the duty of care to the corporation. Practically, the business judgment rule is a presumption in favor of the board.

Did the court here find that the directors had breached the duty of due care what do you think were they grossly negligent?

Majority. The Court found that the directors were grossly negligent, because they quickly approved the merger without substantial inquiry or any expert advice. For this reason, the board of directors breached the duty of care that it owed to the corporation’s shareholders.

What are the exceptions to the business judgment rule?

More globally, the court stated, therefore, that the business judgment rule does not apply if the board (i) committed fraud, corporate waste, engaged in self-dealing, made decisions affected by a conflict of interest, acted in bad faith or with corrupt motive, or breached the duty of due care by having reached their …

Why is the business Judgement rule important?

Under the business judgment rule (BJR), the officers and directors of a company are immune from liability to the company for losses incurred in corporate transactions within their authority, so long as the transactions are made for proper purpose and in good faith; no material personal interest; is informed about …

What is the best judgment rule?

“The business judgment rule is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.

Where does the business judgment rule come from?

For example, in California, the business-judgment rule is codified in section 309 of California’s Corporations Code. Section 309(a) of California’s Corporations Code requires directors to perform their duties “in good faith” and “as an ordinarily prudent person in a like position would.” Cal. Corp.

What is fiduciary duty of care?

The duty of care stands for the principle that directors and officers of a corporation in making all decisions in their capacities as corporate fiduciaries, must act in the same manner as a reasonably prudent person in their position would.

What is a breach of fiduciary duty?

A breach of fiduciary duty is when a fiduciary (such as a director or officer) does not comply with their fiduciary duties (as outlined above).

What is the business judgment test?

The business judgment test is used to determine whether a director should be held liable for decisions that they make, that have undesirable results for the company.

Why was the Smith v Van Gorkom case important?

Smith v. Van Gorkom 488 A.2d 858 ( Del. 1985) is a United States corporate law case of the Delaware Supreme Court, discussing a director’s duty of care. It is often called the “Trans Union case”. Van Gorkom is sometimes referred to as the most important case regarding business organizations because it shows…

What was the outcome of Trans Union v Van Gorkom?

Subsequently, Van Gorkom called a meeting of Trans Union’s senior management, followed by a meeting of the board of directors (defendants). Senior management reacted very negatively to the idea of the buyout. However, the board of directors approved the buyout at the next meeting, based mostly on an oral presentation by Van Gorkom.

What was the stock price of Van Gorkom?

The suggestion came without any substantial research, but Romans thought that a $50-60 share price (on stock currently valued at a high of $39½) would be acceptable. Van Gorkom did not demonstrate any interest in the suggestion, but shortly thereafter pursued the idea with a takeover specialist, Jay Pritzker.