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Introduction to the Law of Corporations: Cases and Materials

Smith v. Van Gorkom

Van Gorkom is a controversial case of the duty of care in the context of a corporate acquisition. In Van Gorkom, the court found that the board had violated its duty of care to the corporation and awarded damages to stockholders. Van Gorkom was the impetus for the adoption of the § 102(b)(7)'s exculpation provision. Consequently, the result in Van Gorkom is unlikely to occur again. 

While you are reading this case to catalogue the various ways a board might fall short in the context of the duty of care, Van Gorkom is probably better described as the first of the 1980s takeover cases. Following Van Gorkom the Delaware Supreme Court would formulate an answer to the basic question that Van Gorkom raises – what are the board’s obligations in the context of a takeover. We will take up that question later when we read Unocal and Revlon. For now, the focus is on the board’s duty of care.