1. Joan's conduct is protected by the business judgment rule, because its a legal principle that makes officers, directors, managers, and other agents of the 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 make in Good Faith.
2. Joan recommends that ManBant give Bob a $300 million loan to start a new airline which is to be collateralized by the airplanes owned by Bob's new airline. The board accepts her recommendation and gives bob the loan. Unfortunately, when Bob does a poor job and his airline goes bankrupt. When Bob defaults on the loan, the bank is only able to recover $150 million. The shareholders bring a derivative lawsuit against Joan for breach of her fiduciary duty of care.
How likely is the derivative action against Joan succeed?
The standard by which decisions of a board of directors of a business are to be reviewed by the courts is known as the business judgment rule. The business judgment rule provides that a board members action is protected from challenge if there is a good business justification for the decision and it isn't fraudulent or an abuse of discretion. When the business judgment rule is applied, the burden of proof to establish the impropriety of the decision is on those challenging it. In the case United States District court for the Southern District of New York 683F. Supp. 422; 1988 U.S. Dist., the plaintiff filed a motion for injunctive and declaratory relief of fiduciary duty. The court denied plaintiffs motion without prejudice to renew because defendants' Board of Directors acted in good faith and thus were entitled to the benefit of the business judgment rule in the adoption of its rights.
Based on the facts and rules the judge will likely rule in Joan's favor because Joan acted in good faith.
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