Question 5:

Fred is a director of the ALLSTAR Corporation, which is engaged in the business of creating and marketing toys and games. A proposal is made to the board to manufacture and market a toy bird that really flies. Market surveys have been done to indicate that the toy would be a good seller, and engineering studies have been done testing the feasibility of such a product. Fred reviews this information and votes in favor of producing this new toy. The vote was 7 to 4 in favor. ALLSTAR produces and markets this new toy bird, but sales are very slow. After several years of losing money, ALLSTAR discontinues this toy. Tina, a shareholder of ALLSTAR, thinks the toy bird venture was a waste of time and money. In fact, she thinks the idea was so bad that she sues Fred for breach of his fiduciary duty of due care in making the decision to proceed with the bird. Discuss the general standards of duty of a director of a corporation, and determine whether Fred is liable in this situation using the applicable law.