Certain business decisions by a board of directors come under judicial scrutiny such as: directors acting to oppose a hostile bid for corporate control, directors responding to a tender offer and proxy contest, and when a corporate board decides to sell the corporation for cash 18B Am. Jur. 2d Corporations §1459. Majority of corporations are incorporated under the state of Delaware’s laws making those cases crucial to how business interacts with the law. The board of directors not only have to prove the good faith of the transaction but also to show its inherent fairness from the viewpoint of the corporation and those interested therein when making business decisions Zahn v. Transamerica Corp., 162 F.2d 36, 42 (1947). “Delaware has three …show more content…
In Aquila, Inc. v. Quanta Services, Inc., 805 A. 2d 196, 206 (2002) the board of directors acted to oppose a hostile takeover and the court used tests from the Unocal case in its opinion because the business judgment rule had been defined. The court stated that they “require directors to show, as a condition to the application of a business judgment rule standard of review, the following: (1) that the board of directors had reasonable grounds for believing that a danger to corporate policy and effectiveness existed; and (2) that the board’s defensive response was reasonable in relation to the threat posed. The first element [can] be satisfied by evidence of the directors’ good faith and reasonable investigation” Id. The Delaware courts further defined the business judgment standard as including the “exercise of substantive due care-the terms of the transaction-and procedural due care-an informed decision.” RCM Securities Fund, Inc. v. Stanton, 928 F. 2d 1318, 1331 (1991). The burden is on the board to prove they acted in good faith when making business decisions and applying the business judgment rule but not to the standard of their motivations being …show more content…
It “requires that the defendant ‘bear the burden of persuasion to show that their motivations were proper and not selfish” and that “their actions were reasonable in relation to their legitimate objective.” In re Rural Metro Corp., 88 A.3d 54, 82 (2014). The burden falls on plaintiffs or stockholders to prove potential aiding and abetting of board members where enhanced scrutiny needs to be applied by the court. The plaintiffs have the burden of proving the conduct fell out of the reasonableness range when accusing defendants of a breach of fiduciary duty Id at 84. Enhanced scrutiny is the middle tier of judicial review because it involves situations where subtle structural and situational conflicts do not rise to the level of fairness review but is above the business judgment rule because it involves motivations