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Fiduciary duty rules are a sliding scale although they are described in terms of two categories of care and loyalty; or, as the Delaware Supreme Court in Guth described it, fiduciary duty is subject to "no fixed scale."

As a result, there is a tension between business judgment rule's "hands off" approach and the extensive judcial scrutiny of a fairness inquiry. Some cases fall between those duties because the legal standards and burdens may differ in a given case from traditional loyalty and care.

When establishing the legal rules of fiduciary duty the courts attempt to balance the need of the fiduciary to act and transact with the protection of the shareholders. Thus, the extent of the judicial scrutiny is the key issue in these cases with plaintiffs seeking extensive judicial scrutiny and the defendants seeking minimal judicial scrutiny. Plaintiff shareholders would prefer the courts to use a loyalty analysis of conflcits of interest because the defendants have the burden of proof and there is active judicial scrutiny of both the fairness of substance and process. Defendants, on the other hand, seek limited judicial involvement under the protection of hte business judgment rule (which places the burden on the plaintiff to prove that hte rule should not apply).


The courts find that some situations do not fit easily within either analysis and attempt to balance shareholders' and managers' interests and establish a range of fiduciary duty rules along this sliding scale between the traditional duties of care and loyalty. This may involve modifying the legal standard used by teh courts or shifting the burden of proof. In studying fiduciary duty caess, it is helpful to see where the court places the case on this sliding scale. This is determined by what standards the court applies to scrutinzie the transaction (e.g., the business judgement rule or fairness or lack of good faith or wate) and how it allocates the burden of proof (i.e., who has hte burden and whether it shifts). In trying to understand the cases adn the sliding scale, it is important to study the standards applied, as well as the placing of hte burden and the rationale for doing so. For example, in a conflict of interest, self dealing transaction, the court may initially place the burden of proof on the defendant to prove fairness of process and substance under the traditional duty of loyalty rule. But if an independent board of directors approves the transaction, soem coruts may shift the burden to the plaintiff to prove fairness or may even decide to apply the business judgment rule. By doing so it has changed the judicial scrutiny (the burden and legal standard) and moved these case along that sliding scale.

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