Delaware Corporate Law Business Judgment Rule
In Delaware, the business judgment rule undergirds a presumption of the propriety of a board's decision in certain circumstances. The rule evolved from Del. Code Ann. tit. 8, 141(a) (1991), the statute granting the directors of Delaware corporations their managerial decision-making power. Zapata Corp. v. Maldonado, 430 A.2d 779, 782 (Del. 1981).
The Delaware statute is nearly identical to K.S.A. 17-6301(a), which provides:
"The business and affairs of every corporation shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this act or in the articles of incorporation. If any such provision is made in the articles of incorporation, the powers and duties conferred or imposed upon the board of directors by this act shall be exercised or performed to such extent and by such person or persons as shall be provided in the articles of incorporation."
The business judgment rule encompasses decisions whether to initiate, or refrain from entering, litigation. 430 A.2d at 782. It presumes a board's decision was made by disinterested directors who acted on an informed basis, in good faith, and in the honest belief the decision was in the corporation's best interest. Spiegel v. Buntrock, 571 A.2d 767, 774 (Del. 1990).
Its protection can be claimed when disinterested directors have fulfilled their duty to inform themselves of all material data reasonably available to them and then acted with due care. Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984), overruled in part on other grounds Brehm v. Eisner, 746 A.2d 244 (Del. 2000).
A corporation may invoke the rule itself to short-circuit a suit such as this by demonstrating that the members of its board of directors who took the questioned action would be protected by the rule if they were sued individually. See Zapata, 430 A.2d at 784 n.10 (when stockholders, after making demand and having their suit rejected, attack board's decision as improper, decision falls under business judgment rule if requirements of rule met).