Duty of Disclosure

Recent decisions of the Delaware courts have clarified the remedies for breaches of the duty of disclosure. The duty of disclosure owed by directors to stockholders is not a separate fiduciary duty, but instead an application of the duties of care and loyalty. In In re Transkaryotic Therapies, Inc., 954 A.2d 346 (Del. Ch. 2008) [enhanced version available to lexis.com subscribers /  unenhanced version available from lexisONE Free Case Law], the court found that if directors failed to disclose certain information to stockholders prior to a transaction, but did not breach their duty of loyalty or care, then plaintiffs could not receive equitable relief or recover monetary damages after the transaction. Instead, the court suggested that plaintiffs seek injunctive relief prior to the consummation of the transaction in order to obtain material information to make an informed judgment on the corporate action in question prior to voting. Once the transaction is complete, the court noted that the irreparable harm resulting from the disclosure violation could not be cured through equitable remedies. Had the directors breached their duty of loyalty or care by not disclosing certain information to stockholders, plaintiffs would have been eligible to recover damages after the transaction.

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