Delaware jury instructions for breach of fiduciary duty and other shareholder matters

This is a quick review for those individuals looking for Delaware jury instructions dealing with interested directors, minority shareholder oppression, and breach of fiduciary duty. We just completed a week long jury trial in DC covering these topics (under Delaware law), and after no small amount of haggling, these instructions came in very handy. The problem is that business matters are handled by the Chancery court in Delaware -- and that isn't a jury forum. The Supreme Court of Delaware is silent about the matter -- and that means you have to hunt through case law to create non-standard instructions. Hope these help!

PLAINTIFFS’

 SUPPLEMENTAL JURY INSTRUCTIONS

 

Comes now your Plaintiffs, A.V. and G.L., through Counsel, and request this Honorable Court include the following special instructions to inform the jury on the specifics of Delaware corporate law:

 

Business Judgment Rule

 

A director is presumed to have acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interest of the company.  This presumption is called the business judgment rule.  The business judgment rule's protections only apply to transactions in which a director is not an interested director, and is independent.

 

To overcome the business judgment rule, a plaintiff must show one of the following exceptions:  That the director (1) had a personal interest in the subject matter of the action, (2) was not fully informed in approving the action, or (3) did not act in good faith in approving the action. 

 

If you believe any one of the three exceptions apply, that is sufficient to overcome the business judgment rule defense.

 

Case Law:

 

From: Cede & Co. v. Technicolor, 634 A.2d 345, 360-362 (Del. 1993)

The [business judgment] rule operates as both a procedural guide for litigants and a substantive rule of law. As a rule of evidence, it creates a "presumption that in making a business decision, the directors of a corporation acted on an informed basis [i.e., with due care], in good faith and in the honest belief that the action taken was in the best interest of the company." Aronson v. Lewis, Del. Supr., 473 A.2d 805, 812 (1984). 

 

To rebut the rule, a shareholder plaintiff assumes the burden of providing evidence that directors, in reaching their challenged decision, breached any one of the triads of their fiduciary duty--good faith, loyalty or due care. Citron v. Fairchild Camera & Instrument Corp., 569 A.2d 53, 64 (Del. 1988).

From: eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 36, 41-42 (Del. Ch. 2010) 

There are a number of ways the plaintiff can rebut the business judgment presumption, including by showing that the majority of directors who approved the action (1) had a personal interest in the subject matter of the action,(2) were not fully informed in approving the action, or (3) did not act in good faith in approving the action.

 

Interested Director Defined

 

A director is interested if he stands on both sides of a transaction or expects to derive a material personal financial benefit from the transaction that no other stockholder receives.

 

If you believe that for a given transaction, the defendant received a substantial benefit that no other member received, that is sufficient to find the defendant was an interested director for that transaction.

 

 

Case Law

 

From: eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 36, 41-42 (Del. Ch. 2010) 

The business judgment rule's protections only apply to transactions in which a majority of directors are disinterested and independent. A director is "interested" if he or she stands on both sides of a transaction or expects to derive a material personal financial benefit from the transaction that does not devolve on all stockholders generally.

 

The Court has generally defined a director as being independent only when the director's decision is based entirely on the corporate merits of the transaction and is not influenced by personal or extraneous considerations. By contrast, a director who receives a substantial benefit from supporting a transaction cannot be objectively viewed as disinterested or independent.

 

From: Nixon v. Blackwell, 626 A.2d 1366, 1376 (Del. 1993)

When there is no independent corporate decisionmaker, the court may become the objective arbiter. 

 

 

Entire Fairness Doctrine

 

If the plaintiff overcomes the business judgment rule, the  defendant must establish that the transaction was the product of both (1) fair dealing and (2) fair price.

 

 

 

Case Law

 

From: Nixon v. Blackwell, 626 A.2d 1366, 1376 (Del. 1993)

If the [business judgment] rule is rebutted, the burden shifts to the defendant directors, the proponents of the challenged transaction, to prove to the trier of fact the "entire fairness" of the transaction to the shareholder plaintiff. Nixon v. Blackwell, Del. Supr., 626 A.2d 1366, 1376 (1993).

 

Under the entire fairness standard of judicial review, the defendant directors must establish to the court's satisfaction that the transaction was the product of both fair dealing and fair price.

 

From: eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 36, 41-42 (Del. Ch. 2010)

To prove a transaction was entirely fair, directors must demonstrate that the transaction was (1) effectuated at a fair price and (2) the product of fair dealing. . . . The entire fairness test is not bifurcated; the Court must consider allegations of unfair dealing and unfair price. Price, however, is the paramount consideration because procedural aspects of the deal are circumstantial evidence of whether the price is fair.

 

Fair Price Defined

 

 To demonstrate a fair price, the defendant must prove that the transaction was economically fair to the minority shareholder plaintiffs.

Case Law

 

From: eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 36, 41-42 (Del. Ch. 2010)

The fair price element relates to the economics of the transaction; it focuses on whether the transaction was economically fair to the plaintiff. The analysis of price can draw on any valuation methods or techniques generally accepted in the financial community.

 

Fair Dealing Defined

 

To demonstrate fair dealing, the defendant must show he discharged his duty as a fiduciary (director) properly.  You should focus on the conduct of the director involved in the transaction, analyzing how the transaction was timed, initiated, negotiated, and structured, as well as how the director sought approval from other members of the LLC.

 

Case Law

 

From: eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 36, 41-42 (Del. Ch. 2010)

Fair dealing focuses on the conduct of the fiduciaries involved in the transaction. In analyzing fair dealing the Court may inquire into how the transaction was timed, initiated, negotiated, and structured, as well as how approvals of the directors and stockholders were obtained.

 

Duty of Loyalty Defined

 

Corporate officers and directors are not allowed to use their position of trust and confidence to further their private interests.

 

Corporate officers and directors have a fiduciary duty to the corporation and its shareholders. That means they have a duty to protect the interests of the corporation, and also a duty to refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his skill and ability might properly bring to it, or to enable it to make in the reasonable and lawful exercise of its powers.

 

The rule that requires an undivided and unselfish loyalty to the corporation demands that there be no conflict between duty and self-interest.  Where a director places his own interest and self-gain above that of the LLC, there is a violation of the duty of loyalty.

 

 

Case Law

 

From: Guth v. Loft, 5 A.2d 503, 510 (Del. 1939)

Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests. While technically not trustees, they stand in a fiduciary relation to the corporation and its stockholders.

 

From: Pogostin v. Rice, 480 A.2d 619, 624 (Del. Supr. 1984) (overruled in part; Brehm v. Eisner, 746 A.2d 244, 253-54 (Del. 2000) (“[O]verruled to the extent that the Court reviewed a Rule 23.1 decision by the Court of Chancery under an abuse of discretion standard or otherwise suggested deferential appellate review”)).

 

Essentially, the duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.

 

From: eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 36, 41-42 (Del. Ch. 2010)

A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives, has established a rule that demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his duty, not only affirmatively to protect the interests of the corporation committed to his charge, but also to refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his skill and ability might properly bring to it, or to enable it to make in the reasonable and lawful exercise of its powers. The rule that requires an undivided and unselfish loyalty to the corporation demands that there be no conflict between duty and self-interest. Ivanhoe Partners v. Newmont Mining Corp., Del. Supr., 535 A.2d 1334, 1345 (1987).

 

 

Minority Shareholder Oppression

 

Shareholders, even those that do not own a majority of shares in a company, have a right to be heard.  When the majority shareholders take actions that prevent the minority from enjoying the benefit of their ownership, a possible claim to shareholder oppression may exist.

 

Minority shareholder oppression can be either one of the following: (1) A violation of the reasonable expectations of the minority. The reasonable expectations are the spoken and unspoken understandings on which the founders of a venture rely when commencing a venture; or

(2) burdensome, harsh and wrongful conduct; a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members; or a visible departure from the standards of fair dealing, and a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely.

 

If you find that the majority shareholder has oppressed the minority, that finding may be used to indicate bad faith and/or breach of loyalty by the majority shareholder.

 

Case Law

 

From: Litle v. Waters, CA No. 12155, 1992 WL 25758, *327-329 (1992)

The most prominent [definition of oppression] stems from the writings of F. Hodge O'Neal, [which] define 'oppression' as a violation of the 'reasonable expectations' of the minority.

Gimpel v. Bolstein, 477 N.Y.S.2d 1014, 1018 (1984). The reasonable expectations are the spoken and unspoken understandings on which the founders of a venture rely when commencing a venture. Gimpel, 477 N.Y.S.2d at 1019.

 

The Court in Gimpel applied a secondary definition of oppressive conduct in determining whether the majority shareholders were oppressing the minority shareholder. This definition of oppressive conduct describes it as "burdensome, harsh and wrongful conduct; a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members; or a visible departure from the standards of fair dealing, and a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely." Gimpel, 477 N.Y.S.2d at 1018 (citations omitted).

 

 

Do you have a jury instruction question? Facing a tricky voir dire? If so, we can help! We have an excellent track record in both criminal and civil jury trials -- from the initial screening of witnesses to jury instructions. Give us a ring and let us work with you to ensure the best outcome.

Hanover Law, PC
Offices in Fairfax, VA and Washington, DC
www.hanoverlawpc.com		Lili O'connell, Esq. Abby Archer, Esq.
888 16th St., NW Ste 800 Washington, DC 20006	2751 Prosperity Ave, Ste 150 Fairfax, VA 22031	Sean R. Hanover, Esq. Stephen Salwierak, Esq.
1-800-579-9864	admin@hanoverlawpc.com	Charles Hatley, Esq.

Setting up the jury -- jury operations in DC, and tactics at the Bar

Jury Management = Trial Success

Beyond closing arguments, my trial experience has taught me that jury instructions and voire dire are probably the most important aspect of civil and criminal trials in state and federal courts. This stems from the simple fact that, the more complex a case, the less likely a jury member will be to remember the information presented. However, the more inclined a juror is to listen to one side or the other, the more likely that juror will be to vote in favor of the preferenced party.

How do you manage the voire dire process? This article is specific to the District of Columbia Court system. It is based on voire dire from the Bench - that is, the judge asks the jury "yes/no" questions based on a predefined set of questions. Prior to trial, it is the duty of the defense (plaintiff and prosecutor, too!) to submit proposed jury questions to the judge for consideration. Generally, the question must fit within the frame work of the general questions asked in Superior Court.

Sample Superior Court Civil Jury Instructions (DC)

• 1. Do you know or recognize any of the lawyers, the parties, the witnesses, the judge, or court staff?
• 2. Do you know anything about this particular case?
• 3. Do you or any immediate family member live or work near or have any special familiarity with the Dunkin Donuts at 1101 4th Street NW or the immediate area where this case is alleged to have occurred?
• 4. Do you know any other member of the jury panel?
• 5. Have you ever previously served on a jury in any type of case?
• 6. Have you ever been a party to or involved in a lawsuit?
• 7. Have you ever testified as a witness in any trial?
• 8. Have you or any immediate family member ever studied or been employed in the legal field?
• 9. Have you or any immediate family member ever been trained or employed in any type of health care services?
• 10. Have you or any immediate family member ever worked in the area of claims adjustment?
• 11. Have you or any immediate family member ever witnessed, been involved in, or sustained personal injuries in a slip and fall?
• 12. Have you or an immediate family member ever served on a corporate board?
• 13. Have you or any immediate family member ever made a claim for personal injuries; OR filed, defended, or been a witness in a lawsuit involving a claim for personal injuries?
• 14. Do you have strong feelings about personal injury cases and lawsuits in general that might affect your judgment in this case?
• 15. Do you hold any convictions or beliefs concerning lawyers, judges, or the legal system that would impair your ability to fairly decide this case?
• 16. Would you be unable to follow the Court’s instructions or render judgment in this case due to religious, moral, political, or philosophical beliefs?
• 17. Do you have any type of personal health problem or are you taking medication that would make it difficult to serve on the jury?
• 18. This trial will take approximately 4 days plus deliberations. Do you have important and/or pressing time commitments/conflicts that would make it difficulHave you or anyone in your family ever been “labeled” in an unpopular way?t for you to serve on this jury?
• 19. Is there any other reason you could not be fair and impartial?

Other common jury instructions I use in civil trials:

Contract
(NOTE: I do not submit these questions in advance, as DC does not allow open ended jury questions. Instead, ask these when you are standing at the bench and the judge asks if there is anything else you would like inquire about)

• Tell me a little about the neighborhood you live in.
• What type of work do you do?
• Do you supervise other people? How many” How do you feel about supervising other people?
• Does anyone have current work related projects that are going to occupy your mind to the extent that you wouldn’t be able to concentrate on the evidence that will be presented in this trial?
• Does your spouse work outside the home?
• How much TV do you watch? What are your favorite shows?
• Have you or anyone in your family ever been “labeled” in an unpopular way?

Vary the questions above based on whether the juror answered "yes" to any of the generic questions proposed by the judge. If the juror answered "yes" to none, you must ask further questions to ensure you can form an opinion about the juror!

Remember, in DC, there are no jury questionnaires. Although, you may ask for an exception to this rule in felony or capital cases. See Rule 24 of the Criminal Rules of the District of Columbia.

Hanover Law, PC
Offices in Fairfax, VA and Washington, DC
www.hanoverlawpc.com		Lili O'connell, Esq. Abby Archer, Esq.
888 16th St., NW Ste 800 Washington, DC 20006	2751 Prosperity Ave, Ste 580 Fairfax, VA 22031	Sean R. Hanover, Esq. Stephen Salwierak, Esq.
1-800-579-9864	admin@hanoverlawpc.com	Charles Hatley, Esq. Leigh Wells, Esq.

Jury Instructions -- key to victory at trial

A jury trial is comprised of multiple steps -- and one of the most critical is the formulation of jury instructions. Instructions are drafted, generally, at the pre-trial conference stage. Opposing parties exchange suggested jury instructions on each area of contested law. Now, if there are nbo novel concepts to consider, then the instructions can be taken from the "generic" jury instruction selection provided by each Courthouse. You can find these in the law library or online from a sevice such as Lexis. However, when specialized, or non-normative instructions are required, you will need to write them yourself.

A jury instruction is comprised of three components: (1) any statute or ordinance on point, (2) relevant case law, and (3) the instruction itself.

An example of a jury instruction on "equitable estoppel" (lulling) might be:

Governing Statute
None known.

Case Law
From JANKOVIC v. INTERNATIONAL CRISIS GROUP, 494 F.3d 1080 at 1086 (2010):

"Similar to equitable estoppel, the doctrine of lulling applies when the defendant “ha[s] done something that amounted to an affirmative inducement to plaintiffs to delay bringing action,” Bailey v. Greenberg, 516 A.2d 934, 937 (D.C. 1986) (quoting Hornblower v. George Wash. Univ., 31 App. D.C. 64, 75 (1908)), as when a defendant promises to settle a dispute outside of court.)

From Property 10-F, Inc. v. Pack & Process, Inc., 265 A.2d 290, 291 (D.C.1970):

Equitable estoppel (lulling) is appropriate where “[The defendant has] done anything that would tend to lull the plaintiff into inaction and thereby permit the statutory limitation to run against him."

Proposed Jury Instruction
Lulling occurs if one party has created an affirmative inducement to the other to prevent or delay them from bringing action on the case.

You must find lulling when a party to a contract has done something that would tend to lull the plaintiff into inaction and thereby permit the statutory limitation to run against him.

An "affirmative inducement" is some action, no matter how minor, taken by a party, designed to intentionally trigger a reaction or action in the other party. Inaction or "doing nothing" cannot be an affirmative inducement.

Once you draft your custom jury instruction, you must submit a copy to opposing counsel and a copy to the judge who will be involved with the case. The final written instructions, including your proposed jury instruction, will be made by the judge. He/She will consider both your proposed instruction, and the instruction of opposing counsel.

Do you need help with an upcoming jury trial? Give us a ring! We've been doing this for a while and would be glad to handle your case, or consult on the jury management process. Remember -- ~30% of the outcome of your case is decided in the proper selection of your jury. Another ~15% is decided by the proper instructions and verdict form. Do the math, folks. That is ~45% of your case decided before the trial starts. Be sure you have an attorney you can trust.

Sean R. Hanover, Esq
www.HanoverLawPc.com
Contact Us
703-402-2723

Voire Dire -- and the jury trial

Ever wonder how a jury trial really works? There are quite a few steps. In the next several articles, I will discuss a few really important aspects of jury trials. While we've been handling complex jury matters for years, we just finished (successfully!) a jury trial where the key elements really made a difference:

• voire dire
• jury instructions
• the jury verdict form

. "Voire Dire" is French, and means to see and to speak. A slightly more easily digestible translation would be "to observe and discuss." Although "question" would be more appropriate, the French word for that is "demander" -- and certainly nothing close to "dire". So we're stuck with observe and discuss. C'est bon! You may have heard the terms translated as: "speak the truth" -- that is pure fiction.

Now, it is important to understand that you must get a good lawyer for a jury trial. Not only must your attorney be an excellent cross-examiner, he or she must be a good tactician. Jury operations are all about tactics. Subtle tactics. Understanding the nuances can make the difference between a sympathetic jury and one the clobbers you. So, be careful and choose wisely.

Voire Dire -- the art of selecting the jury

Calling the jury

Most courts work the same way, but in this example, we will discuss Federal court. Voire dire is initially conducted by the judge. Once all preliminary matters are resolved (before the trial starts), the judge will instruct the clerk to "bring in the jury." The jurors are ushered into the court and seated in the gallery (that's the area with the rows of seats -- in the back), generally in order starting with number one, with five per row (obviously, there are more if the rows are larger). The clerk will also hand each counsel a "jury sheet" which shows each the name of each juror, their juror number, profession, and perhaps a few remarks on demographics. There will also be a line by each juror name for entry of comments.

Initial Questioning by the Judge

Generally, several weeks before the trial a "pre-trial" hearing is held. During this time, jury questions are discussed between the parties and the judge. These are the initial questions the judge will ask the jury directly, and must be agreed to by the parties. During the day of trial, once the jury group is seated in the gallery, the judge have the clerk pass out index cards. As the judge asks the jurors the questions agreed to by the parties at pre-trial, each individual juror will enter the question number and a "yes" if any are true for that juror. The jurors will enter nothing if the question is false or not true. A typical question may be: "1. Do you know any member of the defense team?" or "2. Have you ever owned a business?". A juror would write: "1. yes" if he/she did know a member of the defense team, for example.

Questioning by Counsel

Once the judge has asked all the questions, the clerk will collect the index cards. The judge will call defense and plaintiff's counsels to the bench. Each attorney will stand on one side of the bench. The terms "bench" refers to where the judge sits. The judge will then call each juror by juror number, and ask them to explain his/her answer if a "yes" was given. The attorneys then have the ability to follow-up with their own questions based on the response the juror gives (in explanation) to the judge. The question is one of bias. The attorney wants to learn if there is any bias in the actions of the juror. Also, the attorney needs to get as much information as to motive and interest of the juror as possible. Make notes! Occasionally, a juror will say something that precludes him/her from serving. This is usually obvious. For example, in a DUI trial, a juror that states, "My mother was killed by a drunk driver." would be "struck" for cause. The term "for cause" is legal jargon for removing a juror because they are not appropriate or qualified to sit on the jury. There is a much better chance of a strike "for cause" being accepted if both attorneys agree, however, that is not a requirement. The judge will make the final determination. Once the jurors have been called forth, and questioned at the bench, and those ineligible to serve removed from consideration (for cause), the judge will send the attorneys back to their respective tables in order for them to formulate their peremptory strikes.

Peremptory Strikes

A peremptory strike is the removal of a juror from the list "just because." That is -- for no other reason than the defense or plaintiff's counsel seeks to do so. It is the legal method of stacking the jury. Removing those not favorable to your case. In a civil case, each side receives three peremptory strikes. In a criminal trial, usually the defendant receives 10 strikes and the state receives 6. These numbers are completely at the discretion of the each jurisdictions court rules, so be sure to verify them! A peremptory strike form is provided to each attorney. Thereon, the attorney enters the juror information, as well as demographics information of the jurors who are struck. This ensures that there is an no racial or gender bias in the selection of peremptory strikes.

How to conduct effective Voire Dire

The key to success is knowing the best profile for your jury. What type of case do you have? Is this is a sympathy case for your side? Then seek simple jurors who are family oriented, or females who are more empathetic. Is this a legal, business case where calculations are more valuable? Then seek the professional who is all business. Once you know the profile of the juror you seek, then ask questions at the bench that elicit the bias you seek. While you are respectful and honest in your questioning, this process is not about being fair. It is about stacking the jury with those most sympathetic to your case. Is this a land case? Strike jurors that are clearly large land holders (unless you want them to side with the land-owner!). You get the idea. The key is a thorough and clear understanding of your case, coupled with piercing "bias" questions at the bench.

Jury selection is critical to the theory of your case. Your opening statement and your closing statement will be given directly to the jury. You need to make eye-contact, and the jury must believe you, the attorney. Select jurors that bother represent the closest interest to your client's case, and also who relate to you as an advocate. When the jurors comes to the bench, smile at them. Be gracious and make eye contact. This is the first time you will have a chance to make them yours -- do not squander the opportunity.

Do you need help with an upcoming jury trial? Give us a ring! We've been doing this for a while and would be glad to handle your case, or consult on the jury selection process. Remember -- ~30% of the outcome of your case is decided in the proper selection of your jury. Another ~15% is decided by the proper instructions and verdict form. Do the math, folks. That is ~45% of your case decided before the trial starts. Be sure you have an attorney you can trust.

Sean R. Hanover, Esq
www.HanoverLawPc.com
Contact Us
703-402-2723