Corporate Governance

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (Introduction)

By J Robert Brown Jr.

Hampshire Group Limited v. Kuttner is a 132 page, dare we say, prolix, opinion, that explores the liability of officers under Delaware law.  The opinion doesn't need that length.  It is a straightforward issue concerning officer liability for breach of the duty of loyalty for engaging in alleged misbehavior.   

Nonetheless, the court was very unhappy having to deal with the case.    

• Despite sporadic efforts to settle, [the company and the two officers] staggered on, racking up big litigation expenses to pursue matters with relatively small dollar implications. Indeed, it is a sad reality that the investigation and litigation expenses incurred by [the company and the two officers] far exceed any possible financial harm to Hampshire from any of the underlying conduct at issue in the litigation.

It is an odd attitude to take.  This case involves a rare instance of a board attempting to vindicate the rights of shareholders and obtain a recovery from officers for allegedly wrongdoing officers.  Yet the opinion suggests that the matter should have been resolved on the basis of a cost benefit analysis rather than the nature of the wrong.  

The costs versus the benefits will invariably be considered by the parties in their decision to pursue litigation.  But the decision rests with them, not the courts. 

We will examine this case over the next several posts.  We have no opinion on the actual outcome of the case but plenty of opinion on the approach used by the court. 

Full post as published by The Race to the Bottom on August 09, 2010 (boomark / email).