Duty of care United States corporate law

in ultramares corporation v touche, case concerning touche, niven & company (now deloitte) across nyse, cardozo cj held ordinary duty of care applicable professionals performing services requires people act care , caution proper calling .

the duty of care owed people performing services others is, in principle, applicable directors of corporations. speaking, duty of care requires objective standard of diligence , skill when people perform services, expected reasonable person in similar position (e.g. auditors must act care , caution proper calling , , builders must perform work in line industry standards ). in 1742 decision of english court of chancery, charitable corporation v sutton, directors of charitable corporation, gave out small loans needy, held liable failing keep procedures in place have prevented 3 officers defrauding corporation of vast sum of money. lord hardwicke, noting director s office of mixed nature , partly of nature of public office , partly agents employed in trust , held directors liable. though not judged hindsight, lord hardwicke said never determine frauds of kind out of reach of courts of law or equity, intolerable grievance follow such determination. many states have maintained objective baseline duty of care corporate directors, while acknowledging different levels of care can expected directors of small or large corporations, , directors executive or non-executive roles on board. however, in delaware, in number of other states, existence of duty of care has become increasingly uncertain.

in re citigroup inc shareholder derivative litigation ensured no director of major banking corporation held liable breach of duty of care, though risky practices caused global financial crisis of 2007-8.

in 1985, delaware supreme court passed 1 of debated judgments, smith v van gorkom. directors of transunion, including jerome w. van gorkom, sued shareholders failing adequately research corporation s value, before approving sale price of $55 per share marmon group. court held protected business judgment, directors of corporation [must have] acted on informed basis, in faith , in honest belief action taken in best interests of company. failing act on informed basis, if caused loss, amount gross negligence, , here directors liable. decision triggered panic among corporate boards believed exposed massive liability, , insurance firms feared rising costs of providing directors , officers liability insurance corporate boards. in response lobbying, delaware general corporation law amended insert new §102(b)(7). allowed corporations give directors immunity liability breach of duty of care in charter. however, corporations did not introduce liability waivers, courts subsequently proceeded reduce duty of care outright. in 1996, in re caremark international inc. derivative litigation required utter failure attempt assure reasonable information , reporting system exists , , in 2003 in re walt disney derivative litigation went further. chancellor chandler held directors liable showing reckless indifference or deliberate disregard of whole body of stockholders through actions without bounds of reason . in 1 of cases came out of global financial crisis, same line of reasoning deployed in in re citigroup inc shareholder derivative litigation. chancellor chandler, confirming previous opinions in re walt disney , dicta of re caremark, held directors of citigroup not liable failing have warning system in place guard against potential losses sub-prime mortgage debt. although there had been several indications of significant risks, , citigroup s practices along competitors argued have contributed crashing international economy, chancellor chandler held plaintiffs have prove bad faith conduct director defendants . suggested delaware law had negated substantive duty of care. suggested corporate directors exempt duties other professional performing services owe. itt remained unclear, change in chief justice of delaware supreme court in 2014, whether position remain.