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March 28, 2024

Court Fiduciary Duties

Hon. Bonnie W. David
The PDF for this issue which includes footnotes and endnotes can be found at here.

As a corporate litigator at an international “biglaw” firm, I spent the first decade of my legal career advising clients—often in-house counsel and boards of directors of public corporations—on how to satisfy their fiduciary duties.  Now, as a Magistrate in Chancery for the Delaware Court of Chancery, I preside over a varied docket comprising not only corporate disputes, but also traditional matters in equity, including those involving wills and trusts, real property, and guardianships of adults with disabilities.

Overseeing the guardianship of an adult with a disability is a unique privilege that comes with special responsibilities.  In Delaware, the statute governing adult guardianships vests my court with "the same powers, rights and duties respecting the person with a disability that parents have respecting their child."   The court, while exercising those powers, must act in the best interest of the person with a disability.  Upon determination of a disability, the court itself becomes the ultimate fiduciary of the person with a disability.  Of course, a guardian, once appointed, takes on statutory duties and common law fiduciary duties as well.  But "[i]n reality the court is the guardian; an individual who is given that title is merely an agent or arm of that tribunal in carrying out its sacred responsibility.’"

My approach to fulfilling those duties on behalf of the court is informed by the years I spent advising corporate fiduciaries.  Though the context is different, the governing principles are largely the same.

Know Your Duties

A guardian—including the court—must comply with applicable statutes and court rules governing guardianship matters.  In addition to those requirements, a guardian owes common law duties of care and loyalty.  The duty of care requires a guardian to make decisions on an informed basis, taking into account all material information reasonably available.  And the duty of loyalty (including the subsidiary duty to act in good faith) requires the guardian to act in a manner that she honestly believes to be in the best interests of the person with a disability, rather than her own.

Ask Questions

A fiduciary satisfies her duty of care by asking questions, examining assumptions, and gathering and reviewing all material information reasonably available to her.  This is as true for a guardian deciding what is best for her ward as it is for a director or officer making a business decision on behalf of a corporation.  As I approach any petition for relief in a guardianship matter, I ask myself: what information do I need to make an informed, independent, disinterested, good faith decision about the matter before me, and what tools can I leverage—an evidentiary hearing, input from an attorney ad litem, a report from the guardianship monitoring program—to ensure that I am appropriately informed?

Assess Potential Conflicts

Directors of corporate boards are advised to identify and consider not only their own conflicts, but the conflicts of the other fiduciaries with whom they serve.  The court, as the ultimate guardian of the person with a disability, likewise must inform itself of all potential conflicts.  Guardianship matters are deeply personal, and family and financial dynamics are often more complicated than they first appear.  Digging deep into these factors, and the extent to which they may be impacting interested parties’ positions, is critical.

Process Matters

A well-advised corporate fiduciary knows that implementing a situation-appropriate framework for approaching the matter at hand is crucial for sound decision-making.  It is no different for the guardian of a person with a disability.  Implementing procedural safeguards that promote disinterestedness, independence, and expert advice—for example, by requiring an independent third-party buyer and an appraisal when approving the sale of real property—ensures a fair outcome for the person whose interests the court is duty-bound to protect.

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The Hon. Bonnie W. David

Delaware Court of Chancery

In this column, Magistrate Bonnie W. David, a former corporate litigator who now presides over matters involving guardianships of adults with disabilities before the Delaware Court of Chancery, draws on experience representing directors and officers of corporations to explain the Court’s role as the ultimate fiduciary for a person with a disability.