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57 Vand. L. Rev. 83 (2004)
The Business Judgment Rule as Abstention Doctrine

handle is hein.journals/vanlr57 and id is 97 raw text is: The Business Judgment Rule as Abstention Doctrine Stephen M. Bainbridge* I. INTRODU CTION ...................................................................... 83 II. THE COMPETING CONCEPTIONS OF THE BUSINESS JUDGMENT RULE: AN ABSTENTION DOCTRINE OR A STANDARD OF LIABILITY? ...................................................... 88 A. Technicolor: The Business Judgment Rule as a Standard of Liability .............................................. 90 B. Shlensky v. Wrigley: Abstention in Action ............. 95 C. Why It Matters Doctrinally ...................................... 100 III. FIRST PRINCIPLES: DIRECTOR PRIMACY AND THE TENSION BETWEEN AUTHORITY AND ACCOUNTABILITY ...... 102 A. The Centrality of Fiat: Authority-Based G overnance ............................................................... 104 B. The Trade-Off Between Authority and A ccountability .......................................................... 107 IV. JUSTIFYING ABSTENTION: WHY SHLENSKY GOT IT RIGHT AND TECHNICOLOR DIDN'T .................................................. 109 A. Encouraging Risk Taking ........................................ 110 B. Judges Are Not Business Experts .............. 117 C. Impact on the Board's Internal Dynamics ............... 124 D. Why Judges Must Abstain ....................................... 127 V . C ON CLU SION ........................................................................ 129 I. INTRODUCTION The business judgment rule pervades every aspect of state corporate law, from the review of allegedly negligent decisions by directors, to self-dealing transactions, to board decisions to seek dismissal of shareholder litigation, and so on.1 Countless cases invoke * Professor, UCLA School of Law. I am grateful to Mike Dooley for comments on an earlier draft. Portions of this article are adapted from Chapter 6 of my book CORPORATION LAW AND ECONOMICS (2003), with permission of the publisher, Foundation Press. 1. See, e.g., Auerbach v. Bennett, 393 N.E.2d 994 (N.Y. 1979) (dismissal of derivative litigation); Sinclair Oil Corp. v. Levien, 280 A.2d 717 (Del. 1971) (fiduciary duties of controlling 83

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