Academic journal article Missouri Law Review

Swing and a Miss: The Missouri Court of Appeals Attempts to Interpret Delaware Corporation Law

Academic journal article Missouri Law Review

Swing and a Miss: The Missouri Court of Appeals Attempts to Interpret Delaware Corporation Law

Article excerpt

HCI Investors, LLC v. Fox, 412 S.W.3d 424 (Mo. Ct. App. 2013).

I. INTRODUCTION

The intricate details of obscure legal doctrines may sometimes veil the applicable law governing a dispute. In turn, this obscuration may sometimes lead to a court's misapplication of the relevant legal principles. The Missouri Court of Appeals for the Western District's decision in HCI Investors, LLC v. Fox seems to tit squarely within this camp. In attempting to resolve a dispute relating to the fiduciary duties of self-interested directors, the court declined to explicitly determine the applicable legal principle at play and then saw fit to fundamentally rework the ambiguous standard that it chose. (1) Unfortunately, the court's misapplication was not performed in a vacuum, and the precedential consequences of its decision could be substantial. (2)

Traditionally, under Delaware corporation law, a corporate director could not successfully abdicate her fiduciary duty to make informed business decisions to other parties, including her attorney. (3) Although Delaware courts utilize two standards in analyzing corporate decisions made by directors and majority shareholders, neither of these standards condone this form of abdication. (4) Under the director-friendly business judgment rule, the Delaware Supreme Court has expressly forbidden this sort of behavior. (5) Further, under the more minority shareholder-friendly entire fairness standard, Delaware courts have likewise prohibited corporate directors from abdicating their responsibility to make informed business decisions. (6)

However, in HCI Investors, the Missouri Court of Appeals for the Western District implicitly condoned the abdication of determination of financial terms by a self-interested corporate director to his attorney. (7) In analyzing a case that required the imputation of Kansas corporation law, which itself required an analysis of Delaware corporation law, the court found that a corporate director had not violated the entire fairness standard by leaving the terms of a complex debt-shifting scheme up to his attorney. (8) With this decision, the court signaled a substantial departure from the existing body of Delaware corporation law and the law of those states, like Missouri, that regard Delaware's corporation law as persuasive in the context of the duties of corporate fiduciaries under both the business judgment rule and entire fairness standard. (9)

This Note examines the court's analysis in implicitly adopting this new interpretation of the duties of corporate fiduciaries under the entire fairness standard and argues that by essentially ignoring the dichotomy between the standards and misapplying the relevant case law, HCI Investors was improperly decided. Part II examines the background of the underlying transaction at issue in the case, the parties' arguments, the lower court's disposition, the appellants' arguments on appeal, and the appellate court's disposition. Part III gives some legal background for the issues at play, including the adoption of Delaware's corporation law by the Kansas courts generally and the application of the business judgment rule and the entire fairness standard more specifically. Part IV details the court's decision, specifically its innovative approach to corporate fiduciary duties and its failure to expressly choose an applicable standard of fiduciary duty. This Note concludes by determining that, when faced with arcane legal principles that may have obscured the dispute at issue, the court in HCI Investors ducked its responsibility to clearly delineate the tenets of its decision, and, in doing so, the court effected a fundamental alteration in the construction of the relevant fiduciary duties that may have immediate and lasting consequences.

II. FACTS AND HOLDING

In January 2011, the appellants, the Fox Family, (10) were minority shareholders of Hillcrest Bancshares ("Bancshares"), a one-bank holding company ("Holding Company") incorporated in Kansas. …

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