July 12, 2017 Articles

Georgia Legislature Stands Behind Business Judgment Rule

Although Georgia’s Supreme Court began to move in the opposite direction, the state’s legislature has passed a bill to return the state to the traditional business judgment rule.

By W. Scott Sorrels, Yvonne Williams-Wass, and Rebekah Runyon

A national crisis, such as the Great Recession, will often leave in its wake a shake-up of previously well-established legal principles that are swallowed up by a tide of bad facts. While we expected the Great Recession to upend the way financial institutions were regulated and capitalized, few of us imagined that the fundamental tenets of director and officer conduct would be tossed in the air.

Among the victims of the Great Recession were community banks; over 400 failed nationwide. Georgia was at the center of the community banking crisis, topping the list for the number of community bank failures with more than 90 total failures across the state. What followed were approximately two dozen professional liability lawsuits brought by the Federal Deposit Insurance Corporation (FDIC) against directors and officers of failed Georgia banks—almost all of which involved claims that turned on an application of the business judgment rule and whether officers and directors of banks could be liable for ordinary negligence. The FDIC’s suits challenged what was presumed to be a foundational part of corporate law: the presumption of good faith and ordinary care afforded to directors and officers in the performance of their duties by the business judgment rule.

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