Smith v. Van Gorkom case brief

Smith v. Van Gorkom (Del.Sup.Ct. 1985)

FACTS
Van Gorkom unilaterally arrived at the idea of working with a corporate takeover
specialist [Pritzker] and then was pigheaded about the deal he struck with Pritzker,
not willing to disclose how he arrived at the deal or consider alternatives.
The Board did not adequately inform themselves of Van Gorkom’s dealings.
However, they put the proposed merger to a stockholder vote, which it passed.
Court establishes ‘gross neglect’ as the appropriate standard for evaluating whether a
business judgment was ‘informed.’

HOLDING
Held that the Board’s breach of duty resulted from failure to inform themselves and
failure to adequately inform shareholders.

ANALYSIS
Note that there seems to be some role for a ‘total fairness’ analysis. [unclear]
Under Delaware §141(e) directors are allowed to rely in good faith on reports made
by officers.
Note that Delaware enacted the amendment to §102(b) in response to this case,
allowing corporate charters to eliminate directors’ liability, except in certain
circumstances.