By: Scott B. Riddle, Esq.
I previously posted about the Delaware case of Stone v. Ritter, (Del. Supr., Nov. 6, 2006), in which the Delaware Supreme Court "clarified its position on whether "good faith" is a separate stand-alone duty, in the same way as loyalty and due care are." There the court stated –
First, although good faith may be described colloquially as part of a "triad" of fiduciary duties that includes the duties of care and loyalty, the obligation to act in good faith does not establish an independent fiduciary duty that stands on the same footing as the duties of care and loyalty. Only the latter two duties, where violated, may directly result in liability, whereas a failure to act in good faith may do so, but indirectly. The second doctrinal consequence is that the fiduciary duty of loyalty is not limited to cases involving a financial or other cognizable fiduciary conflict of interest. It also encompasses cases where the fiduciary fails to act in good faith. As the Court of Chancery aptly put it in Guttman, "[a] director cannot act loyally towards the corporation unless she acts in the good faith belief that her actions are in the corporation’s best interest."
Gordon Smith, at the Conglomerate Blog, has a post entitled "Good Faith, Care and Loyalty in Delaware," in which this important case is discussed. Professor Stephen Bainbridge has followed up that post with a post of his own, entitled Good Faith in Delaware After Stone v. Ritter. Professor Bainbridge also has a post on his Blog entitled "Stone v Ritter: Directors Caremark Oversight Duties." His post focuses on issues raised by the decision, other than the duty of good faith (which he previously wrote about here).