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Is It A Breach Of Fiduciary Duty To Fail Or Refuse To Conform To Delaware’s Judicial Decisions Or Practices?

The answer to this question in Nevada may soon be an unequivocal “no”.  Last week, the Nevada Legislature unanimously passed SB 203 and sent it to Governor Brian Sandoval for signature.  Among other things, Section 2 of SB 203 declares:

The directors and officers of a domestic corporation, in exercising their duties under NRS 78.138 and 78.139, may be informed by the laws and judicial decisions of other jurisdictions and the practices observed by business entities in any such jurisdiction, but the failure or refusal of a director or officer to consider, or to conform the exercise of his or her powers to, the laws, judicial decisions or practices of another jurisdiction does not constitute or indicate a breach of a fiduciary duty.

Federal courts have often looked to Delaware precedents in the absence of Nevada authority.  See Brown v. Kinross Gold U.S.A., Inc., 531 F. Supp. 2d 1234, 1245 (D. Nev. Jan. 23, 2008) (“Because the Nevada Supreme Court frequently looks to the Delaware Supreme Court and the Delaware Courts of Chancery as persuasive authorities on questions of corporation law, this Court often looks to those sources to predict how the Nevada Supreme Court would decide the question.”), Hilton Hotels Corp. v. ITT Corp., 978 F. Supp. 1342, 1346 (D. Nev. Oct. 2, 1997) (“Where, as here, there is no Nevada statutory or case law on point for an issue of corporate law, this Court finds persuasive authority in Delaware case law.”), and Cenergy Corp. v. Bryson Oil & Gas P.L.C., 662 F. Supp. 1144, 1147 (D. Nev. Apr. 28, 1987) (“The Nevada Supreme Court has not ruled on this topic. Several cases from Delaware, however, are instructive.”).  At least insofar as the fiduciary duties of directors is concerned, SB 203 is a unmistakable renunciation of the practice of referring to Delaware authority, at least with respect to claims of breach of a fiduciary duty.

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Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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