Duty of Disclosure

aka "Duty of Candor"

Directors have a duty to make full and fair disclosure of pertinent information within Board's control

"... not an independent fiduciary duty, but instead stems from, and is an application of, the general fiduciary duties of care and loyalty"
Better described as a duty of disclosure rather than the sometimes used duty of candor
Must disclose all material facts to other directors
Prevents insiders from using special knowledge
to their own advantage
Directors in an interested director transaction should not disseminate false information
-- even absent stockholder action

Claiming they would have have run a proxy contest but for false assurances that company would conduct a CEO search that gave full consideration to external candidates
Claiming that CEO search was a sham and that
they were misled

Court held that complaint adequately stated claims for
disclosure violations and for equitable fraud

Notable Cases

In re Pure Resources Del Ch 2002

Opinion V C Strine
Target corporation must disclose financial analyses underlying fairness opinion
As a matter of state corporate law,
even when not required by federal securities laws
Involved a tender offer by a controlling stockholder
(Unocal Corp)

Duty of disclosure standard is no different in context of cash-out merger and minority shareholders' decision to seek appraisal than in other contexts
Affirms Chancery Court's dismissal of plaintiff's complaint
Discussion of duty of disclosure

public statements made to the market,
including shareholders
statements informing shareholders about the affairs of the corporation, without a request for shareholder action
statements to shareholders in conjunction with a request for shareholder action
see paragraph 35

Case involved false statements made by Mercury Finance about its financial condition
Mercury subsequently failed
Affirms Chancery Court's dismissal of complaint but holds that plaintiffs should be allowed to file an amended complaint
Facts could support a claim for breach of duty of disclosure

Reaffirmed the fiduciary duty of disclosure (candor)
"Obligates directors to provide the stockholders with accurate and complete information material to a transaction or other corporate event that is being presented to them for action." at p.10

Favors use of term duty of disclosure rather than the sometimes used duty of candor
Directors have a duty to disclose all material facts in connection with a contemplated shareholder action

Seminal case on disclosure obligations
Involved a self-tender
Held that a majority stockholder "owed a fiduciary duty ... which required 'complete candor' in disclosing fully 'all the facts and circumstances surrounding the' tender offer."
At p.279

Commentary

Law firms

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