The recent Delaware Court of Chancery decision styled In re Columbia Pipeline Group, Inc. Merger Litigation, Cons. C.A. No. 2018-0484-JTL (Del. Ch. May 15, 2024), provides a mini-treatise on the titular topic, and a scholarly deep dive that includes a tour of nearly 40 years of Delaware corporate law on the tension between the contractual obligations of directors—as compared to the fiduciary duties of board members, and the general primacy of contract law.  The court also addresses how those competing principles interface with the theory of efficient breach. See Slip op. at 37-64 and footnote 124.

This 86-page opinion could qualify as a law review article in its own right. A law review article could also be written with commentary on the cornucopia of case law, scholarship and statutory authority cited in the footnotes, as well as insightful analysis of the most important Delaware decisions on the titular topic over the last four decades.

It may be audacious, and it risks treating a serious topic too casually, but for purposes of busy readers who might be interested primarily in the highlights, I provide a few bullet points.

Takeaways and Gems of Delaware Law

  • The court observes that “Delaware law does not regard a contractual breach as less culpable than a fiduciary breach.”  See Slip at 39. The court begins the opinion with a quote from the Shakespeare play Measure for Measure:  “The tempter, or the tempted, who sins most?”  The court in the first sentence of the opinion describes that quote as a summary of the primary dispute addressed in the opinion, which is the final chapter of a case which includes the liability decision styled In re Columbia Pipeline Gp., Inc. Merger Litig., 299 A.3d 393 (Del. Ch. 2023). 
  • The court’s thorough discussion of the issue of whether a breach of contract or a breach of fiduciary duty is a greater sin, and whether one warrants graver consequences, reminds me of the iconic description of the many circles of hell in Dante’s Inferno, which assigns descending levels (or concentric circles) of eternal torment in the afterlife depending on the types of transgressions for which people were condemned to hell. [Applying the reasoning in this opinion to the circles of hell in Dante’s Inferno, if someone suffered damnation for breach of fiduciary duty or breach of contract, they would find themselves in the same circle of hell forever.]
  • The court describes why, under Delaware law, fiduciary duties do not trump contracts—but rather, the opposite is true. The court discussed the rationale of the key Delaware cases on this topic over nearly 40 years:  Van Gorkom; QVC; Omnicare; post-Omincare cases such as, e.g., C&J Energy Servs., Inc. v. Miami Gen. Empls.’, 107 A.3d 1049, 1072 (Del. 2014). Slip op. at 39 to 64.
  • The court emphasized that Delaware law does not regard the fiduciary duties imposed by equity as more important than voluntarily assumed contractual commitments.  Slip Op. at 61.  Rather, the court instructed that:

The cases overwhelmingly demonstrate that a court cannot invoke the fiduciary duties of directors to override a counterparty’s contract rights.  That is true even when a heightened standard of review applies. To argue that case law empowers a court to set aside a contract when reviewing director actions under an enhanced form of judicial scrutiny, embraces the much-ridiculed position that the Omnicare majority was perceived to take.  As consistently interpreted by courts and commentators, QVC does not support that assertion, and post-Omnicare case law soundly rejects it.

See footnote 122 and accompanying text.

  • The court noted that in some situations both claims for breach of fiduciary duty and breach of contract can proceed in the same case. In the present case, however, contractual pre-emption “has the upper hand.”  See footnote 122 at page 63.
  • In connection with explaining that the fiduciary duties of directors did not enable the corporation to escape a contract, the court recognized the concept of “efficient breach,” and that a corporation can engage in efficient breach just like any other contracting party.  See footnote 124.
  • For students and fans of philosophy, it is always enlightening to see a quote about metaphysical insights in a judicial opinion from a famous philosopher.  See footnote 140 quoting from Jean-Paul Sartre, Existentialism Is a Humanism 44 (Carol Macomber Trans., Yale Univ. Press 2007) (“[W]hat is impossible is not to choose.  I can always choose, but I must also realize that, if I decide not to choose, that still constitutes a choice.”)  This quote was in connection with the reference to several Delaware decisions in which the court referred to a conscious decision to refrain from acting as being nonetheless a valid exercise of business judgment.  See Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984) (subsequent history omitted).
  • The court also engaged in an extensive discussion of the Delaware Uniform Contribution Among Tortfeasors Act (DUCATA), and how to allocate damages when a plaintiff releases some, but not all tortfeasors, and later recovers damages in a higher amount.  See Slip op. at 31-32. The court also discussed the interfacing of the unclean hands doctrine with DUCATA.  See Slip op. at 33.