The Practicality of Outreach Statutes Enforcing Directors\u27 Duty of Care

This article is a sequel to a proposal for state legislation holding directors of foreign corporations liable to resident shareholders for violation of the enacting state\u27s duty of care [72 Neb. L. Rev. 1 (1993)]. Under such legislation, resident shareholders could personally recover for damages caused by directors\u27 negligence in connection with a major transaction. Should a number of states adopt the statute, the proposal contemplates a multistate class action in which a court would apply the law of each state in which a shareholder resides and assign damages accordingly. The earlier piece sought to anticipate and overcome potential objections grounded in constitutional principles and choice-of-law doctrine. Questions regarding the workability and desirability of the statute were left for later exploration. This article addresses some of those questions. Part I seeks to demonstrate that notwithstanding plausible procedural concerns, the shareholder multistate class action envisioned by the statute could be managed by the courts. Even if the reach of a state\u27s fiduciary standard were thus extended, however, the duty of care has traditionally been regarded as placing only slight demands on directors\u27 conduct. Therefore, Part II attempts to show how the directors\u27 obligation to exercise due care could be reconceived as a potent instrument for vindicating shareholders\u27 interests. Finally, since the proposed statute clashes with the contract model of the corporation popular among current commentators, Part III raises and responds to objections that could be brought under the contractual conception. The article concludes that neither these objections, the conventionally limited scope of directors\u27 duty of care, nor the procedural hurdles of class actions should stand in the way of a legislature seeking to establish locally enforceable duties toward injured resident investors