DiMatteo has an excellent discussion of these issues.
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From: Academy of Legal Studies in Business (ALSB) Talk [[log in to unmask]] on behalf of Michael O'Hara [[log in to unmask]]
Sent: Thursday, December 22, 2011 11:40 AM
To: [log in to unmask]
Subject: Re: Delawyering the Corporation
ALSBTALK:
Surely the market works. Accordingly, since we are in America where you are so often free to screw up your life in the way you wish, the always well functioning market will generate a correct price for an exculpatory clause excusing a wrongfully acting fiduciary.
Ginny, what price were you quoted for your sale of that exculpatory clause? Did the firm increase its E&O policy limits and name individual investors as insureds? Did investors who agreed to the exculpatory clause get to purchase a fixed number of common shares at par (e.g., $0.001)?
Moving to a far less facetious stance, in Delaware which contracts automatically have an obligation of good faith? Is it only UCC contracts, or is it some larger fraction (e.g., all consumer) of all contracts, or is it really all contracts have an obligation of good faith? In Nebraska, due to our Constitution's express separation of powers, it is only those contracts the legislature has expressly interfered [Oops! My tongue slipped into my cheek again.] with the free market by imposing that obligation (i.e., UCC is most of them).
I saw that type of exculpatory clause in a Nebraska contract with a Delaware choice of law. It exited quickly when I asked the proposer a question in front of multiple potential investors. I asked as follows. "I can understand how you would like that exculpatory clause so as to minimize litigation expenses in this new enterprise, and how that is good the firm to avoid those costs, and how it is really good for you: the fiduciary whose wrongful acts are to be excused. But, what I'm having a hard time understanding is why it is good idea for me to invest my money with a man who starts off by saying if the future he wastes my money neither I nor the firm get to sue him and win. Can you explain to me why that's a good idea for me and a good idea for the firm to make it easy for you to steal our money? Not that you ever would steal our money, but why should we make it easy?"
Michael
Professor Michael J. O'Hara, J.D., Ph.D.
Finance, Banking, & Law Department
College of Business Administration
Mammel Hall 228
University of Nebraska at Omaha
6708 Pine Street
Omaha NE 68182-0048
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(402) 554 - 2823 voice fax (402) 554 - 2680
http://cba.unomaha.edu/faculty/mohara/web/ohara.htm
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