Delaware's decision last summer to amend Section 102(b)(7) to permit the exculpation of certain officers for direct (but not derivative) stockholder suits for monetary damages for breach of fiduciary duty is attracting a great deal of attention. This is understandable given Delaware's continuing dominance of the market for corporate charters. The idea of exculpating officers is not new and in fact dates back some 35 years.
Two years after the Delaware Supreme Court's momentous decision in Smith v. Van Gorkum, 488 A.2d 858 (Del. 1985), the Nevada legislature amended the state's corporation law to permit a provision in the articles "eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for damages for breach of fiduciary duty as a director or officer, but such a provision must not eliminate or limit the liability of a director or officer for: (a) Acts or omissions which involve intentional misconduct, fraud or a knowing violation of law; or (b) The payment of dividends in violation of NRS 78.300. 1987 Nev. Stat. ch. 28, § 2. The legislature has since amended the law and exculpation of both directors and officers is now automatic pursuant to NRS 78.138, unless the articles include a provision providing for greater liability. Unlike Delaware, this exculpation is not limited to certain officers and does not exclude derivative actions. To establish liability a plaintiff must either establish a statutory exception or (1) rebut the statutory presumption that officers in deciding upon matters of business, are presumed to act in good faith, on an informed basis and with a view to the interests of the corporation; and (2) prove (a) the officer’s act or failure to act constituted a breach of his or her fiduciary duties as an officer; and (b) the breach involved intentional misconduct, fraud or a knowing violation of law.