Officers And The Business Judgment Rule

Recently, I came across the following assertion:

First, other than the recent aberration of Poggetto v. Switzer , the BJR has never been applied to officers in California.

Stephen P. Wiman, Thomas D. Long, and David J. Farkas, The Calif. Business Judgment Rule: Does it Apply to Corporate Officers and What Are the Insurance Implications if It Does Not?, BNA’s Corporate Counsel Weekly, Vol. 28, No. 26, p. 206 (July 3, 2013).  These authors evidently missed my post from last December: Court Of Appeal Finds Error In Refusal To Give “Business Judgment” Instruction To Jury.  In that post, I noted the First District Court of Appeal’s holding in Veronese v. Lucasfilm Ltd., 212 Cal. App. 4th 1 (2012) and observed:

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).

In March, the California Supreme Court denied review of Veronese, 2013 Cal. LEXIS 2557 (Cal. Mar. 27, 2013).

Incidentally, it should be no surprise that Messrs. Wiman, Long and Farkas are hostile to the application of the business judgment rule to officers.  Mr. Long and his firm represented the Federal Deposit Insurance Corporation (FDIC) in winning a jury verdict of nearly $169 million dollars against three former bank officers.  See Is FDIC v. Van Dellen California’s Smith v. Van Gorkom?


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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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