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CALIFORNIA CORPORATE & SECURITIES LAW

What The Delaware Supreme Court Overlooked In Gantler v. Stephens

I have never been reconciled to the Delaware Supreme Court’s pronouncement in Gantler v. Stephens, 965 A.2d 695, 709 (Del. 2009) that “the fiduciary duties of officers are the same as those of directors”.  Officers are, as I’ve previously noted, agents of the corporation while directors are not.  This means that an officer’s duties are sourced in agency law.  Professor Deborah A. DeMott forcefully makes this point in a forthcoming paper:

Making agency central to understanding officers’ positions and responsibilities helps to differentiate officers from directors.  Like a director, an officer is a fiduciary, but distinctively so, not as a mere instance of a generic “corporate fiduciary” who owes duties of loyalty and care to the corporation.”

Corporate Officers as Agents, 74 Wash. & Lee L. Rev. __ (no. 2, 2017).

Understanding that officers are agents also brings into focus the often overlooked question of what law governs an officer’s performance of his or her duties.  Remarkably, the Delaware Supreme Court made no mention in Gantler v. Stephens of the law of agency or the possible application of Ohio law, where the corporation was headquartered and operated a bank.  In my view, the Court should have analyzed the actions of the defendants qua officers under agency law and determined under applicable choice of law principles whether to apply Delaware or Ohio law.  However, given Delaware’s commitment to hegemony in the field of corporate law, I expect that the Delaware courts will be reluctant to admit the possibility that officer duties are properly the subject of a choice of law analysis.

Because officers typically exercise authority over corporate employees, the title of officer has come to imply authority.  The etymological roots of the word are quite the opposite.  It is derived from the Latin word, officium, meaning a duty or obligation.  The Romans formed officium from two words opus (work) and facere (to do).  Thus, an officer is one that does work for another.  This etymology captures the agency essence of the modern officer.  The greatest of all Roman lawyers, Marcus Tullius Cicero, wrote a book about duties titled De Officiis.  In language that Benjamin Cardozo would have appreciated, Cicero describes the importance of duty as follows:

Nulla enim vitae pars neque publicis neque privatis neque forensibus neque domesticis in rebus, neque si tecum agas quid, neque si cum altero contrahas, vacare officio potest, in eoque et colendo sita vitae est honestas omnis et neglegendo turpitude.

No part of life, public or private, or in the markets or in the homes, whether you are doing it alone or gathered with others, is without an obligation, and in the keeping or neglecting of this duty depends all that is honorable or base in life.

De Officiis, 1.4.

 

 

 

 

 

 

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