Understanding the Business Judgment Rule in Business Litigation

An Orange County business litigation lawyer provides representation when you sue a company, or when you or your organization are sued. In some cases, a lawsuit is not brought against a business but is instead brought against its corporate directors or board members. Facing personal liability for decisions made while serving as a director or on a corporate board could make involvement with businesses too substantial a risk. As a result, there is a rule that provides limited protection under appropriate circumstances. 

Brown & Charbonneau, LLP can provide assistance if you are a director or board member who is sued for your professional decisions. We can help you to raise defenses, including arguing that a powerful legal rule called the business judgement rule applies to protect you. You should get legal assistance from an Orange County business litigation lawyer as soon as possible if a claim is made so you can begin putting together a defense to a lawsuit against you. Give us a call today to get started.

What is the Business Judgement Rule in Business Litigation?

While serving as a company director or serving on the board of a company, you may be asked to make a huge number of decisions about the operation of an organization. In some cases, the decisions that you make are going to impact the future of the company and are going to affect the profitability of the company. Some of these decisions could result in losses, which could in turn lead to lawsuits by shareholders who have suffered a decline in the value of their investments.

If you are sued for your involvement with an organization, you need to be able to defend yourself to try to avoid personal liability. With help from an Orange County business litigation lawyer, you can make a determination regarding whether the business judgement rule will apply in your situation or not.

The San Diego County Bar Association provides a detailed explanation of the Business Judgement Rule. According to the Bar Association, the business judgement rule “immunizes corporate directors from personal liability if they act in conformance with the standards established under Corporations Code sections 309 (profit corporations) and 7231 (nonprofit corporations).”

The Bar Association also explains that: “the business judgment rule protects a board of directors’ appropriate exercise of discretion.”

If a lawsuit is filed against board members or directors, you can assert the business judgement rule in order to argue that you should not face personal liability for your actions. If the court believes the business judgment rule applies, you are protected from a verdict against you that could otherwise cause you financial loss.

Does the Business Judgement Rule Protect You?

Whether or not the business judgment rule applies to protect you is going to be determined on a case-by-case basis. The question of whether or not the business judgement rule applies is highly fact-based. In order for you to receive protection under the business judgement rule:

• You must have acted in good faith in making your decisions and taking action.
• You must have acted in a manner you believe to be in the best interests of the shareholders and in the best interests of the corporation.
• You must have exercised a reasonable level of care in making your decision, including making reasonable inquiries and doing your due diligence. Whether you acted with a reasonable level of care or not is determined based on what an ordinarily prudent person in a similar position would have done under similar circumstances. You are entitled to rely on financial statements and other reports from other officers and employees of the company who you think are responsible, as well as on independent accountants and committees who you have confidence in.

An Orange County business litigation lawyer will help you to prove that you meet these criteria and will assist you in arguing that you should be protected by the business judgement rule.

Getting Help from An Orange County Business Litigation Lawyer

Brown & Charbonneau, LLP understands the business judgement rule and we work with directors and board members all the time to help them avoid personal liability for professional decisions. Your financial stability could be at stake if accusations are made against you in connection with professional decisions that you have made. Get legal help from an Orange County business litigation lawyer as soon as possible so you can protect your interests. Give us a call at (866)237-8129 or contact us online to find out about the assistance that our legal team can provide to you.