Section 204(a)(10) of the California Corporations Code permits the articles of incorporation to include provisions eliminating or limiting the personal liability of a director for monetary damages in an action brought by or in the right of the corporation for breach of a director's duties to the corporation and its shareholders, as set forth in Section 309. However, such a provision may not exculpate directors for a number of different acts or omissions. Thus, the statute does not permit exculpation for acts or omissions that show a "reckless disregard" for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders. Thus, it may be important to know what constitutes "reckless disregard" on the part of a director.
The General Corporation Law does not define "reckless disregard", but recently the Second District Court of Appeal held that a director acts with "reckless disregard" when the director:
- does an intentional act or intentionally fails to act in accordance with the director's duties,
- with knowledge, or with reason to have knowledge, that the director's conduct creates a substantial risk of serious harm to the corporation or its shareholders.
Kanter v. Reed, 92 Cal. App. 5th 191, 309 Cal. Rptr. 3d 375, 387 (2023). If this reminds anyone of Chancellor Allen's ruling in In re Caremark Int'l Inc. Derivative Litig. , 698 A.2d 959 (Del. Ch. 1996), it should because the Court of Appeal held that "Caremark is consistent with section 204, subdivision (a)(10)(iv)".
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