As a corporate lawyer, it is hard to ignore the Delaware Supreme Court’s opinion in Smith v. Van Gorkom, 488 A.2d 858 (1985) overruled on other grounds Gantler v. Stephens, 965 A.2d 695 (Del. 2009). Professor Stephen Bainbridge has called it “one of the most important corporate law decisions of the 20th century” and Bernard Sharfman has described it as ” possibly the most famous corporate law case decided by the Delaware Supreme Court”. The Enduring Legacy of Smith v. Van Gorkom, 33 Del. J. Corp. Law 287 (2008). Chicago Law School Professor Daniel Fischel panned the decision as “one of the worst decisions in the history of corporate law.” The Business Judgment Rule and the Trans Union Case, 40 Bus. Law. 1437, 1455 (1985). Former Stanford Law School Dean Bayless Manning accused the Delaware Supreme court of exploding a bomb. Reflections and Practical Tips of Life in the Boardroom After Van Gorkom, 41 Bus. Law. 1, 1 (1985).
I was therefore surprised to discover that the California Supreme Court has not cited, much less expressly adopted, Von Gorkom in the more than thirty decades since it was published. The Court of Appeal has cited Von Gorkom only once in a published decision, Katz v. Chevron Corp., 22 Cal. App. 4th 1352 (1994). However, the Court of Appeal in that case applied Delaware, not California, law.
Notwithstanding this dearth of case law, Van Gorkom has affected California law. The case rang such alarums in corporate board rooms that the Delaware legislature enacted Section 102(b)(7) permitting Delaware corporations to include exculpatory provisions in their certificates of incorporation. California followed suit with Corporations Code Section 204(a)(10).