Tag: Midland Grange

Imposing Caremark Fiduciary Duty on Corporate Officers

I previously posted on the Midland Grange case [Delaware Imposing Same Fiduciary Duty on Officers as Directors] where the Delaware Chancery Court imposed the same obligations on officers as directors, including the duty of loyalty and the duty of care.

In Miller v. McDonald, et al., ( D. Del., Bankr., April 9, 2008), the Bankruptcy Court for the District of Delaware ruled on corporate governance issues related to the fiduciary duties of officers and directors. The Bankruptcy Court denied a motion to dismiss in the course of ruling that Caremark duties would be imposed on an officer (who was not a director), that was on the management team when the President of the company committed fraud and other actions and omissions that ultimately led to the bankruptcy filing of the company.

It is correct that Delaware law does not impose fiduciary duty on “employees” generally, but it is incorrect that it does not impose failure of oversight (fiduciary duty) as to officers. . . . While it is true that all of the cases relied upon by the Trustee involved directors’ conduct, not officers’, I believe the Caremark decision itself suggests that the same test would be applicable to officers.

The corporate entity in Miller v. McDonald is a Florida corporation, so the court is exporting this concept of similar duties between officers and directors from Delaware to Florida.

Thus, it is clear that under both Delaware and Florida law both officers and directors owe fiduciary duties to the corporation.

Thanks to the Harvard Law School Corporate Governance Blog and Francis G.X. Pileggi of Fox Rothschild LLP and the Delaware Corporate and Commercial Litigation Blog for pointing out this case: Court Imposes Caremark Fiduciary Duty on Corporate Officer.

Delaware Imposing Same Fiduciary Duty on Officers as Directors

In Stone v. Ritter, we saw the Delaware courts imposing a duty on corporate directors to attempt to assure that a corporate information and reporting system exists, and that failure to do so may, under some circumstances, render a director liable for losses caused by the illegal conduct of employees. See The Implications of Stone v. Ritter.

In Midland Grange No. 27 Patrons of Husbandry v. Walls, 2008 WL 616239 (Del. Ch., Feb. 28, 2008) the Delaware Chancery Court was reviewing a potential breach of fiduciary by a fraternal non-profit organization. The key statement in the decision is that regardless of whether the defendants were considered officers or directors, their fiduciary duties would be the same:

Thus, regardless of whether the Officer Respondents are properly characterized as “officers” of the Grange or “directors” of the Grange, “[t]he fiduciary duties an officer owes to the corporation ‘have been assumed to be identical to those of directors.’ “ Ryan v. Giford, 935 A.2d 258, 269 (Del. Ch.2007) (quoting In re Walt Disney Co., 2004 WL 2050138, at *3 (Del. Ch. Sept. 10, 2004))

Thanks to the Delaware Corporate and Commercial Litigation Blog for pointing out the Midland Grange case: Chancery Imposes Same Fiduciary Duty on Officers as Directors