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8 Bus. Law. Update 1 (1987-1988)

handle is hein.journals/buslwme8 and id is 1 raw text is: Director Liability New York Enacts Second Statute; California Proposal Pending The last three years have witnessed dramatic developments in the courts, in insurance markets, and in state legisla- tures on liability of corporate directors, particularly derivative suit liability. The first of these developments was the deci- sion of the Delaware Supreme Court in Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), holding directors of Trans Union liabile to shareholders in damages for gross negligence in failing to give adequate consideration to, and in ap- proving too hastily, the terms of a pro- posed cash-out merger based on a pre- mium for the corporation's stock of al- most 50 percent above the market. The negative impact of Smith v. Van Gorkom on the market for insurance against di- rectors' and officers' liability was com- pounded by two other developments: the increase in litigation challenging management defensive tactics in re- sponding to hostile takeovers and the practice of naming directors and officers as individual defendants in massive toxic or environmental tort litigation. Directors' increased vulnerability to claims for monetary damages led to ef- forts across the country to amend corpo- rate statutes to reduce that vulnerability. The pioneering venture was by the In- diana legislature. In April 1986, as part of an extensive revision of its corporation law, that legislature adopted a provision to the effect that a director will not be liable for breach of, or failure to per- form, a duty unless the breach or failure :onstitutes willful misconduct or reck- lessness. Ind. Bus. Corp. Law, ch. 35, § 1 (e). This pattern of direct statutory exclu- 3ion of damage liability for negligence :ordinary or gross) was later followed in Ohio, where a November 1986 statute precluded damages liability for acts or omissions not shown by clear and con- vincing evidence to have been under- taken with deliberate intent to cause in- jury to the corporation or undertaken with reckless disregard for the best interests of the corporation. Ohio Gen. Corp. Law § 1701.59. This enactment was part of a general package of legisla- tion including antitakeover provisions responsive to Sir James Goldsmith's at- tempt to acquire Goodyear. Missouri appears to have pioneered a secondary statutory pattern. Earlier in 1986, that state had amended its corpo- ration statute to permit shareholder-ap- proved indemnification of director or officer liability (including amounts paid in settlement) except liability based on conduct finally adjudged to have been knowingly fraudulent, deliberately dis- honest or willful misconduct. Mo. Gen. & Bus. Corp. Law 351.355, §§ 2, 7. This indemnity provision appears to apply to derivative suits as well as to third-party claims even though the indemnity tech- nique has been criticized as circular in Continued on page 2 September/October 1987 Volume 8 Number 1 Section of Corporation, Bandng and Business Law Members Approve New Section Name Prince Metternich once said, Cling to that which is old, for that which is old is good. Lowell, however, advised that New occasions teach new duties; Time makes ancient good uncouth; They must upward still, and onward, who would keep abreast of Truth. Rejecting Met- ternich and heeding Lowell, the mem- bers of the Section, in a closely divided vote during the ABA Annual Meeting in San Francisco, approved the recom- mendation of the Council to change the name of the Section to The Section of Business Law. Under the ABA by-laws, this change of name does not become effective until notice has been published in the ABA Journal and the change is thereafter ap- proved by the House of Delegates. That vote is expected to take place at the Feb- ruary 1988 meeting of the House. So when we gather at the Section's 1988 spring meeting in Philadelphia on March 24-27, we will be sporting our new name. Section mossbacks can take solace in the old adage that a rose by any other name smells as sweet. INSIDE Decision changes spousal cosigner rules in community property states 3 Recent Decisions Affect Lenders 4 Sporkin Speaks Out at Securities Program 7 Section Promotes Tort Law Reform

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