Elon Law professors Andrew Haile and Thomas Molony analyzed a recent ruling of the Delaware Chancery Court and one from the North Carolina Business Court as they continued their "Business Law Developments" series in the June, 2010 edition of Notes Bearing Interest, a quarterly publication of the N.C. Bar Association.
In their review of Xu Hong Bin v. Heckmann Corp., a case decided by the Delaware Chancery Court, it was considered whether a right to advancement of expenses set forth in a corporation’s certificate of incorporation may be altered by conditions provided for in the corporation’s bylaws. Ultimately, the court held that, when the certificate and bylaws are adopted at the same time, a right to advancement of expenses set forth in the certificate may be subject to reasonable conditions provided for in the bylaws.
Haile and Molony explained that the court’s decision underscores the importance of reading carefully both the certificate of incorporation and bylaws before becoming a director of a Delaware corporation.
Haile and Molony also reviewed State ex rel. Comm’r Ins. v. Custard, a March 2010 case decided by the N.C. Business Court. The claims in Custard arose from the failure of Commercial Casualty Insurance Company of North Carolina, a North Carolina corporation. The court determined that: there is no separate fiduciary duty of good faith; directors of the same corporation may be held to different standards of care; directors of corporations engaged in different businesses may be held to different standards of care; and the standard of review for an alleged breach of the duty of care is gross negligence.
Haile and Molony pointed out that the opinion in Custard may be the most thorough and far-reaching issued by the Business Court so far this year. Likewise, they lauded Judge Tennille for providing welcome guidance on several issues relating to the fiduciary duties of officers and directors.
Click here to read Haile and Molony’s “Business Law Developments” in its entirety.
By Danielle Appelman, L’12