Friday, March 23, 2012

Brehm v. Eisner case brief (both Eisner cases)

Brehm v. Eisner (Del.Sup.Ct. 2000)

Initial decision was reached without the plaintiff having an opportunity for discovery.
Under Delaware §141(e), Board can rely on a qualified expert. To defeat a motion
for dismissal based on prima facie reliance on an expert, plaintiff must prove:
o Directors did not in fact rely on expert
o Reliance was not in good faith
o Did not reasonably believe that expert’s advice was within area of expert’s
professional competence.
o Expert not selected with reasonable care
o Subject matter so obvious that Board should have overruled expert’s advice
o Decision by Board constituted waste or fraud
To overcome dismissal (due to lack of excuse), plaintiffs must use ‘tools at hand’ to
show particularized facts that would allow for excuse. Note that these ‘tools at hand’
include shareholder rights of inspection (allowed under Delaware §220).

2nd Eisner Case
Court says there is no protection from corporation’s §102(b)(7) provision because
there was a breach of loyalty and bad faith.
Case’s fact pattern closely resembles that of Smith v. Van Gorkem, so that case could
have been won for shareholders even with a 102(b)(7) provision.
Lesson of this litigation is that the Board must follow a real substantive decision-
making process.

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