A warning shot for directors? Delaware Supreme Court reverses four Court of Chancery decisions

In each of 3 recent decisions, Levco Alternative Fund. Ltd. v. The Reader's Digest Ass'n. Inc. (2002), Omni Care, Inc. v. NCS Healthcare, Inc. (2002), and MM Companies. Inc. v. Liquid Audio, Inc. (2003), the Delaware Supreme Court held that defendant directors had breached their fiduciary duties by approving a transaction, reversed a ruling by the Delaware Court of Chancery in favor of the defendant directors, and directed the Delaware Court of Chancery to issue a preliminary injunction blocking the transaction. In a fourth decision, Telxon Corp. v. Meyerson (2002), the Delaware Supreme Court held that a plaintiff could proceed to trial against directors on a claim for breach of fiduciary duty, again reversing the Delaware Court of Chancery. The issuance of 4 significant decisions by the Delaware Supreme Court within 7 months emphasizes the need for directors to take the utmost care in evaluating and approving transactions.