Business Judgment Rule Formally Recognized in Georgia

By Scott L. Bonder

The business judgment rule requires that courts defer to good faith decisions of corporate officers concerning the running of their businesses. The issue is commonly raised by shareholders (directly or derivatively) suing an officer or director for a perceived bad decision. Provided that the decision was made in good faith, even if stupid, it is usually immune from suit.

In Georgia, the business judgment rule lurked in the shadows and was often invoked as “duty of good faith and fair dealing” or “due diligence.” Finally, on July 11, 2014, the Georgia Supreme Court issued its opinion in FDIC v. Loudermilk, __ S.E.2d __, 2014 WL 3396655 (July 11, 2014), which recognized the business judgment rule as a standalone concept. Henceforth, when a business decision is alleged to have been made negligently, the wisdom of the decision will be insulated from judicial review unless the plaintiffs rebut the presumption that the decision was made in good faith and through the exercise of ordinary care.

Scott L. Bonder is a trial lawyer who specializes in handling complex business litigation, including partnership and shareholder disputes.

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