Rep Krista Griffith, a proud member of the Delaware Bar, on the floor of the House during debate over SB 313 made it clear to those of us in attendance, that fiduciary duties always trump contract. I guess she wanted to make sure all the law professors who don't know anything (obvi) could hear her. She was pretty emphatic:
"Really, really critically; most importantly: fiduciary duties trump contracts. Always! Fiduciary duties trump contracts, always. There is nothing in this legislation that changes that.”
I guess what she is saying that if a board signs a contract in violation of their fiduciary duties that somehow that shareholders could sue and get the contract rescinded or something like that, so all you law professor types should shut up.
OK. But, is that even true?
In Nemec v. Shrader (2010), the Delaware Supreme Court wrote:
[W]e must … not rewrite the contract to appease a party who later wishes to rewrite a contract he now believes to have been a bad deal. Parties have a right to enter into good and bad contracts, the law enforces both (at 1126).
It is a well-settled principle that where a dispute arises from obligations that are expressly addressed by contract, that dispute will be treated as a breach of contract claim. In that specific context, any fiduciary claims arising out of the same facts that underlie the contract obligations would be foreclosed as superfluous (at 1129).
Or, there's this from Strine in Westpac LLC v. JER Snowmass LLC (2010):
When a fiduciary duty claim is plainly inconsistent with the contractual bargain struck by parties to an LLC or other alternative entity agreement, the fiduciary duty claim must fall, otherwise ‘the primacy of contract law over fiduciary law in matters involving … contractual rights and obligations [would be undermined].’
Or, in Smith v. Van Gorkom, the Delaware Supreme Court held that fiduciary duties would not permit the board to terminate a contract in the event a subsequent bid appeared because the contract did not permit such a termination. In the absence of a fiduciary termination right in the contract, the contract prevailed. The counterparty got the company the counterparty negotiated, meanwhile having breached their fiduciary duties, the board was left to pay damages. Hardly sounds like fiduciary duties trumping contract. Were that the case, the Van Gorkom court who have held that every contract has an implicit fiduciary termination right that need not be written in the contract, like a duty of good faith and fair dealing. But, the court didn't do that, because at least according to the Delaware Supreme Court, fiduciary duties don't automatically trump contract rights of counterparties. But what do they know.