California Appellate Court Finds Board, Not CEO, Exculpated from Breach of Fiduciary Duties

On November 15, 2017, in Central Laborers’ Pension Fund v. McAfee, Inc., the California Court of Appeal Sixth Appellate District, applying enhanced scrutiny, held that exculpatory provisions of McAfee’s charter protected the outside board of directors but not the CEO-president from a class action claim brought by former shareholders alleging breach of fiduciary duties. The plaintiffs alleged that the CEO failed to inform the rest of the McAfee board of a $50 per share offer he received during a conversation with a senior vice president of buyer Intel, which ultimately resulted in McAfee accepting an offer for $48 per share. At worst, the Court observed, the independent directors would have breached their duty of care in failing to inform shareholders of a higher price that was offered during negotiations, but that would not have led to money damages under the charter’s exculpation provision.