Amanda Weiner

Writing Assignment #5

At a first glance, the fiduciary duty of loyalty owed by corporate directors to the corporation may appear to be quite similar to the duty of care. Both fiduciary duties provide standard rules to govern the intentions and actions of directors of the corporation. While these two duties often appear together throughout numerous cases and seem to be closely related, they are actually distinct concepts. Given this distinction, udicial review of an alleged violation of the fiduciary duty of loyalty differs from the courts! review of alleged duty of care violations. When presented with an alleged violation of the duty of care, courts are often hesitant to "remove their glasses#. $ut simply, courts view this alleged violation through the "lens# of the business udgment rule. %his rule is often hard to rebut since it creates a strong presumption in favor of the directors that protects their business decisions. &ourts try to refrain from "second guessing# the decisions made by these directors, unless it can be shown that their actions constituted fraud, illegality of conflict of interest. %o rebut the strong presumption created by the business udgment rule, the burden is on the plaintiff to prove facts that have a tendency to show that the duty of care has been violated. %he plaintiff must prove that directors were not adequately informed in ma'ing their decision, failed to use all material information readily available to them, their actions constituted gross negligence, and(or there was failure to e)ercise reasonable oversight. *f the plaintiff alleges a substance violation +such as wasting corporate assets,, he(she must prove that the e)change is so one-sided that no person of a reasonable mind would have entered into the transaction, or that the transaction is completely irrational. See Brehm v. Eisner. .irectors of corporations, however, may still be further protected by the "safe haven# of relying on an e)pert in ma'ing important decisions. See Del. 141(e) and Brehm v. Eisner. When a plaintiff alleges facts that suggest that there may be a potential self-interest(selfdealing among the directors, attention focuses away from the duty of care and instead toward the duty of loyalty. %he duty of loyalty requires directors to place the corporation!s interest over their own personal, and potentially conflicting, interests. &ourts will review an allegation of "selfdealing# that may be a violation of the duty of loyalty under rigorous scrutiny. %he business udgment rule no longer applies, and the standard is quite different from that involved in duty of care issues. /ere, courts apply a standard of intrinsic fairness. %his standard e)amines whether or not the directors! decision +the process in ma'ing the decision, the substance of the decision, etc., was ob ectively fair. %he burden now switches to the defendant that inherent fairness e)isted in the course of their actions(decisions. Bayer v. Beran provides an e)ample of how courts review alleged duty of loyalty violations. 0ne of the plaintiffs! allegations involved the issue of the wife of the corporation!s president +who was also a member of the board of directors, being featured on the company!s radio advertising program. %he court viewed the directors! decisions under rigorous scrutiny, and determined that there was ultimately no duty of loyalty violation. %he &ourt found that even though the &10!s wife benefitted from the program +and the &10 clearly did as well,, there was no "unfairness# because she was not paid more nor given any more time on air than other performers, and the board!s main reason for approving the advertising program was based on the fact that it truly was in the company!s best interests.