What is the core holding of Cede & Co. v. Technicolor?

The Court held that to rebut the business judgment rule, the plaintiff need not prove injury. Showing a breach of the duty of care can rebut the presumption.

Does burden shifting make directors automatically liable?

No. Burden shifting only decides the review standard. It does not itself create liability against directors.

How did due care matter in this case?

Directors failed to inform themselves adequately. That lack of due care was enough to rebut the business judgment presumption.

Is proof of injury required to rebut the business judgment rule?

No. Proof of injury is not required at the rebuttal stage according to the Delaware Supreme Court in this case.

What practical lesson should boards take?

Build a full record of informed decision-making. Thorough process protects the business judgment presumption.

Cede & Co. v. Technicolor (1993)

A simple explainer on Delaware’s business judgment rule and burden shifting.

Delaware Supreme Court 1993 634 A.2d 345 Corporate Law ~5 min read

By Gulzar Hashmi • India • Published: 23 Oct 2025

Quick Summary

This case explains how Delaware courts handle the business judgment rule when a shareholder challenges board action. The Court said: to rebut the rule, the plaintiff does not need to prove injury. Showing a breach of the duty of care (for example, directors not informing themselves) is enough to shift the burden and change the review standard.

Issues

Did the plaintiff have to prove that directors breached fiduciary duties and caused injury to rebut the business judgment rule?
Does burden shifting create automatic director liability?

Rules

Burden shifting is a procedure to choose the standard of review; it does not decide liability by itself.
Requiring proof of injury at rebuttal would wrongly turn a threshold step into a final decision on the merits.
A duty of care breach (uninformed decision-making) can rebut the business judgment presumption.

Source idea: Delaware corporate law framework for the business judgment rule and fiduciary duties.

Facts (Timeline)

Optimized

Cinerama (shareholder) dissented from a second-stage merger and asked the court to appraise its shares.

It also sued Technicolor and directors for fraud, breach of fiduciary duty, and unfair dealing, seeking rescissory damages.

The Chancery Court saw strong evidence of duty breaches but still ruled the plaintiff had not met its burden.

On appeal, the Delaware Supreme Court reviewed how the burden should work under the business judgment rule.

Timeline graphic for Cede & Co. v. Technicolor

Arguments

Appellant (Shareholder)

Directors did not fully inform themselves; duty of care was breached.
No need to prove injury to rebut the business judgment rule.
The burden should shift to directors to justify the decision.

Respondent (Directors/Company)

Business judgment presumption should stand absent proof of harm.
Burden should remain with the plaintiff.
No loyalty breach; therefore, presumption should not fall.

Judgment (Holding)

Held: The Chancery Court applied the burden incorrectly. To rebut the business judgment rule, the plaintiff did not need to prove injury. A duty of care breach—such as failing to become informed—was enough to rebut the presumption.

Burden shifting sets the review standard; it does not create automatic liability.
Even without a loyalty breach, poor process (lack of due care) can collapse the presumption.

Ratio Decidendi

A well-pleaded duty of care breach is sufficient to rebut the business judgment presumption. At that point, the burden shifts to directors to prove the decision was informed, in good faith, and in the company’s best interests.

Why It Matters

Clarifies that process quality is central in Delaware corporate law.
Helps students separate rebuttal (standard of review) from liability (final outcome).
Guides boards to build strong, informed records before approving major deals.

Key Takeaways

No injury needed to rebut the presumption at the threshold stage.
Duty of care breach can be enough to shift the burden.
Burden shifting ≠ liability; it only sets the review lens.

Mnemonic + 3-Step Hook

Mnemonic: “Care Beats Presumption” (CBP)

Care — show lack of due care.
Beats — that beats the presumption.
Presumption — then directors must justify the decision.

IRAC Outline

Issue	Must a plaintiff prove injury to rebut the business judgment rule?
Rule	Burden shifting selects the review standard; proof of injury is not needed at rebuttal.
Application	Directors did not sufficiently inform themselves; this duty of care breach defeats the presumption.
Conclusion	The presumption fell; burden moved to directors to validate their decision-making process.

Glossary

Business Judgment Rule: A presumption that directors acted on an informed basis, in good faith, and in the company’s best interests.
Burden Shifting: Moving the duty to produce evidence or persuade from one party to the other.
Duty of Care: Duty to act with due care—gathering adequate information before deciding.
Appraisal: Court process to value dissenting shareholders’ stock after certain mergers.