California’s business judgment rule offers no protection for officers

My firm is regularly asked to investigate and comment on business losses. Although we never provide legal opinions as to viable causes of action, we routinely are informed by competent legal counsel that the business judgment rule protects both officers and directors, unless the actions of the business person rise to the level of gross negligence and/or willful misconduct.

A recent case limits the business judgment rule to directors only. The Court reviewed California Corporations Code §309, the related legislative history, and all California cases that addressed this subject. The Court commented on the general perception of the business judgment rule as follows:

Many California courts, when mentioning BJR, have repeatedly lumped officers and directors together without distinction, albeit in dicta. In addition, and not surprisingly, the distinction as to whether BJR applies to both corporate officers and directors has been the subject of much academic debate as the parties in this case suggest.”

We provide additional background and explanation in this article.


Permanent link to this article:

Leave a Reply

Your email address will not be published.