Robert J. Rhee (University of Florida Levin College of Law) has posted A Theory of Corporate Bad Faith: The Legal Topology of Public and Private Bad Faith on SSRN. Here is the abstract:
This Article advances a theory of corporate bad faith. The doctrine houses seemingly ad hoc rules that protect against discrete gaps in the traditional fiduciary framework of care and loyalty. This Article identifies four forms of bad faith, three long established and the fourth being waste. Each form proscribes a specific kind of a wrong. The four forms appear to be an archipelago of discrete rules fashioned for specific contexts and classified under the common moniker “bad faith.” Beneath form discreteness is a unifying theory of bad faith: Like the contractual obligation of good faith and fair dealing in contract law, the fiduciary rule of good faith in corporate law is an equitable gap filler; it is a residual, anti-evasion principle. Its manifestations into the four forms inoculate the corporation from any wrongful conduct in equity. They foreclose evasion for misconduct that cannot be conceptualized as traditional loyalty. The fundamental rule of bad faith is simply the general rule of tort and criminal liability, viz., a fiduciary commits bad faith when an actus is coupled with a culpable mens. This Article makes three contributions to the corporate law literature. First, it provides a general theory of bad faith, wherein the important insight is that “intentional misconduct” (subjective bad faith) is the first order principle and the other three forms of bad faith comprise specific rules fitted to particular recurring contexts. Second, this Article argues that, despite undisciplined, unhelpful language in statutes and cases, the requisite scienter is not intent, purpose, or “bad faith” but simply knowledge of the nature of the act that is wrongful, thus transforming an actus from mere conduct that is business judgment to misconduct that is bad faith. Third, this Article argues that the legal topology of bad faith forms two distinct shapes: private bad faith, which injures the corporation’s private economic interest in pursuing profit; and public bad faith, which injures its public noneconomic interest in abiding by the rules of our society. These three novel ideas advanced in this Article have pragmatic and theoretical implications, including the proper disposition of litigated corporate cases and the enforcement of corporate social obligations.
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