In CASE 20.1 Smith v.Van Gorkom (1985),plaintiff-shareholders alleged the directors were grossly negligent in failing to inform themselves adequately before making a decision about a merger.How did the court rule and why?
A) For plaintiff-shareholders,because the board failed to obtain adequate information on merger terms and therefore was not protected by the business judgment rule.
B) For directors,because the board was protected by the business judgment rule since there was no conflict of interest.
C) For the directors,but the board was not protected by the business judgment rule but rather by the business merger rule.
D) For the directors,because the board was protected by the business judgment rule since fraud could not be established.

Question

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The court ruled in favor of the plaintiff-shareholders because the board of directors had failed to obtain adequate information on the merger terms and therefore was not protected by the business judgment rule. The court held that the directors breached their duty of care by failing to inform themselves adequately before making a decision about a merger.