Court Of Appeal Finds Error In Refusal To Give “Business Judgment” Instruction To Jury

Justice Russell C. Ostrander: “judges are not business experts.”
Dodge v. Ford Motor Co., 204 Mich. 459, 508 (1919)

A few days ago, I wrote about U.S. District Court Judge Dale S. Fischer’s refusal to extend the business judgment rule to officers. See Is FDIC v. Van Dellen California’s Smith v. Van Gorkom? Judge Fischer’s decision ultimately led to a nearly $169 million jury verdict against three corporate officers. Thus, it may come as a surprise that the First District Court of Appeal this week held that it was reversible error for a trial court to refuse to give a business judgment instruction to a jury. Veronese v. Lucasfilm LTD., 2012 Cal. App. LEXIS 1245 (Dec. 10, 2012).

Veronese did not involve a suit by a corporation against an officer for breach of fiduciary duty. Rather, it was a pregnancy discrimination case. Nonetheless, the Court’s justification for applying the business judgment rule is the same as that commonly advanced in breach of fiduciary duty cases: “Regardless, under the law Patel [the defendant employer's estate manager] was entitled to exercise her business judgment, without second guessing.” (emphasis added). As Professor Lyman P.Q. Johnson has observed, avoiding judicial encroachment into business decisions is one of the policy rationales commonly advanced for applying the business judgment rule to officers. Corporate Officers and the Business Judgment Rule, 60 Bus. Law. 439, 462-463 (2004-2005).

Carson City and Dover – Separated at Birth?

I doubt that many would confuse Carson City, Nevada with Dover, Delaware but they might not be as dissimilar as they seem:

  • Both are capitals of states that aggressively market their corporate law to companies headquartered in other states.
  • Neither is located on a federal Interstate Highway.
  • Neither is the largest city in its state.
  • Both have populations of less than 100,000 souls.
  • Both are capitals of states whose official state quarter design includes at least one horse on the reverse (tails) side.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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