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Practice Tip: The Business Judgment Rule As Applied to Matrimonial Matters
According to Black's Law Dictionary, Sixth Edition, the Business Judgment Rule is described as follows:
This Rule immunizes management from liability in corporate transaction undertaken within both the power of corporation and authority of management where there is reasonable basis to indicate that transaction was made with due care and in good faith.
Nursing Home Bldg. Corp. v. DeHart, 13 Wash. App. 489, 535.
The Business Judgment Rule was first recognized in Otis & Co. v. Pennsylvania R. Co., 61 F.Supp. 905 (DCPA 1945). Otis was a shareholder's derivative action that alleged that the corporate directors did not obtain the best price available for the sale of securities and dealt only with a single investment house. The action alleged that by failing to shop sufficiently for the best price available, the directors cost the company significant money. The court in Otis ruled that although the directors made the wrong decision, their decision was made in good faith. The court determined that “mistakes or errors in the exercise of honest business judgment do not subject the officers and directors to liability for negligence in the discharge of the appointed duties.” In essence, the Business Judgment Rule has been used to protect owners and directors from liability when exercising their duties in good faith.
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