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Law School Case Brief

Cede & Co. v. Technicolor - 634 A.2d 345 (Del. 1993)

Rule:

Burden shifting does not create per se liability on the part of the directors; rather, it is a procedure by which Delaware courts of equity determine under what standard of review director liability is to be judged. To require proof of injury as a component of the proof necessary to rebut the business judgment presumption would be to convert the burden shifting process from a threshold determination of the appropriate standard of review to a dispositive adjudication on the merits.

Facts:

Plaintiff Cinerama, a New York corporation, dissented from a second-stage merger and petitioned the trial court for appraisal of shares. Plaintiff filed a personal liability suit against defendant Technicolor, a Delaware corporation and its board members, alleging fraud, breach of fiduciary duty, and unfair dealing and included a claim for rescissory damages. The Court of Chancery of State of Delaware found pervasive and persuasive evidence of defendant director’s breach of their fiduciary duties, but concluded that plaintiff had not met its burden of proof. Accordingly, it ruled in favor of defendants.

Issue:

Under the circumstances, did the plaintiff have the burden of proof to show that defendant’s directors breached their fiduciary duties?

Answer:

No.

Conclusion:

The Court held that the Chancellor erroneously imposed on plaintiff, for purposes of rebutting business judgment rule, a burden of proof of defendant board's lack of due care. According to the Court, the plaintiff did not have to show injury to rebut the business judgment presumption of care. The Court averred that the breach of the duty of care, without any requirement of proof of injury, was sufficient to rebut the business judgment rule. Even if there was no breach of the duty of loyalty, failure of the members of the board to adequately inform themselves represented a breach of the duty of care, which in itself was sufficient to rebut the presumption of the business judgment rule. Accordingly, the Court remanded the case for further proceedings.

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