What is the Business Judgment rule?
It is legal principle that makes officers, directors, managers, and other agents of a corporation immune from liability to the corporation for loss incurred in corporate transactions that are within their authority and power to make when sufficient evidence demonstrates that the transactions were made in Good Faith.
The business judgment rule specifies that the court will not review the business decisions of directors who performed their duties in good faith; with the care that an ordinarily prudent person in a like position would exercise under similar circumstances; and in a manner the directors reasonably believe to be in the best interests of the corporation.
This year, in FDIC v. Loudermilk, the Federal District Court for the Northern District of Georgia held that, absent a clear statutory reference or an explicit ruling from the Georgia Supreme Court, Georgia law does not mandate application of the Business Judgment Rule to preclude as a matter of law ordinary negligence claims in the banking context.
On July 11, 2014, the Supreme Court provided the explicit ruling sought by the Federal District Court, holding that while the Business Judgment Rule ordinarily insulates the wisdom of a business decision from judicial review and presumes officers and directors have acted in good faith and exercised ordinary care.
Although the Court's decision was narrowly tailored to apply to bank officers and directors, the decision is likely to have broader implications, especially given the reasoning of the Court.