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The Exculpatory Clause Defense to Shareholder Derivative Claims

ABA Business Torts Journal
Winter 2010

A director’s responsibilities in serving on a corporation’s board of directors are accompanied by significant personal financial risks. When shareholders disagree with the director’s actions or believe that the director harmed the corporation by inaction, they can assert a breach of fiduciary duty claim. Exculpatory clauses—or, in the parlance of Delaware law, section 102(b)(7) clauses—provide a defense. When properly invoked, exculpatory clauses can provide a basis for the dismissal at the outset of a case of certain types of breach of fiduciary duty damages claims brought derivatively by shareholders. Recent Delaware Chancery Court decisions have accepted exculpatory clauses as a valid defense for director-defendants at the motion to dismiss stage. This article explores how exculpatory clauses work to shield directors from personal liability for non-intentional breaches of fiduciary duties owed to the corporation.

This article was originally published in Business Torts Journal, Volume 17, Number 2, Winter 2010.

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