A recent client alert from Fulbright & Jaworski raises some additional concerns about last month's decision (discussed in a December 14, 2011 blog post) by a federal district court judge in California that the "Business Judgment Rule" doesn't extend its protections to officers of California corporations, as it does to directors. F&J attorneys Andrew Demetriou and Michael Clark wonder why California law was applied by the judge.
A curious feature of the case is that IndyMac was a Delaware corporation and yet there were no arguments made by either side, or any consideration given by Judge Wright, as to why California corporate law, as opposed to Delaware law, should govern the case. Delaware law provides officers as well as directors with the benefit of the business judgment rule and would have compelled a different result. While California's "pseudo foreign corporation statute" (Corporations Code § 2115) would displace Delaware law in favor of California law where Corporations Code § 309 is implicated, Corporations Code § 2115 should not apply in this case, as IndyMac was a publicly traded company and thus exempt from that law.
I suspect that issue may be raised on appeal.
Demetriou and Clark also observe that this decision is likely to concern officers of California corporations and of foreign corporations that have a presence in the state because "[w]ithout the availability of the business judgment rule as a bedrock defense, corporate officers now will face potential liability for good faith business decisions based on a finding of negligence, which will be evaluated under standards that have yet to evolve in case law." As K&L Gates attorney Ronald Stevens warned, this decision, if not overturned, may very well shrink the pool of potential bank officers and directors. It's getting so the only (slightly) more dangerous occupation than bank officer or director is the clearing of land mines using either the "psychic energy" or "touch-and-feel" methods.
This is one more reason to leave California and move to more hospitable climes. Texas, for instance. Yes, I realize that Rick Perry isn't exactly a giant step up from Jerry Brown, but he's certainly not a giant step down, either. And sure, we've got Austin, but we don't have Berkeley. Moreover, Texas has (A) no personal income tax, (B) plenty of Shiner Bock, and (C) a "bidness"-friendly climate. When Matthew McConaughey is out of state making movies, this isn't a half-bad place to live or to bank.