SAN DIEGO. "Business judgment rule" protects corporate directors from liability for good-faith decisions that later turned out sour. This is done to encourage directors to take necessary, reasonable business risks without being paralyzed by constant fear of lawsuits.
Even though courts, when issuing rulings on corporate governance, usually lumped directors and officers together, on December 13, 2011, the US District Court for the Central District of California held in FDIC v. Perry that California officers are not protected by the business judgment rule. Perry, the former IndyMac CEO, tried to invoke the protection of the business judgment rule when he was accused of writing billions of dollars of risky mortgage loans even as the secondary market for the loans dried up. Judge Otis Wright II refused to extend the business judgment rule protection to Perry, noting that Section 309 of the California
Corporations Code only mentions "directors" and, according to the committee that drafted the California's business judgment rule, an officer has a "greater obligation to be familiar with the affairs of the corporation."
Corporations Code only mentions "directors" and, according to the committee that drafted the California's business judgment rule, an officer has a "greater obligation to be familiar with the affairs of the corporation."
Some jurisdictions extend the business judgment rule protections to both directors and officers, and in others the issue is unsettled.
