Emerald Partners v. Berlin: Is It Misunderstood?

Janaki Rege Catanzarite

Since Van Gorkom, directors are afraid of personal liability due to the expanded reach of the duty of care. This fear was appeased by. the enactment of § 102(b)(7) of the Delaware General Corporations Act, however, Emerald Partners v. Berlin seems to have brought back the fear ofpersonal liability. It has been assumed that Emerald Partners affected the rights that the directors had gained under § 102(b)(7) to get a § 12(b)(6) dismissal for failure to state a claim and subjected them to an entire fairness analysis when they should be entitled to a § 12(b)(6) dismissal.

This note discusses the actual effect of the decision in Emerald Partners and how it has been misread to take away the rights provided by § 102(b)(7). Emerald Partners took away no right; it clarified that although the right given by § 102(b) (7) to exculpate the directors for breach of duty of care was still strong, it may not be a right that can be given effect by a § 12(b)(6) dismissal when breach of another fiduciary duty was also an issue. In effect, Emerald Partners does nothing more than provide when directors can get a § 12(b)(6) dismissal under the § 102(b)(7) provision in the corporation’s charter.