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Directors Fail To Escape Liability For Approving Dividend

I last wrote about FDIC v. Ching, 2014 U.S. Dist. LEXIS 92687 (E.D. Cal. July 8, 2014) in July of 2014.  That post concerned Judge Kimberly J. Mueller's ruling that California's statutory restrictions on distributions to shareholders preempted the FDIC's common law claims against directors of a failed bank for negligence and breach of fiduciary duty in approving an $8.8 million dividend.  Judge Mueller, however, allowed the FDIC proceed against the directors under Corporations Code Section 309 and 12 U.S.C. § 1821(k).  In the ensuing trial, a jury award damages in the amount of $2.64 million.  As the late Paul Harvey was wont to say, "now, for the rest of the story":

Defendants also contend they are entitled to judgment as a matter of law because their business decisions were shielded by the business judgment rule. Mot. at 7-8.

Not so.  The court properly instructed the jury that the business judgment rule was an available defense against liability in certain circumstances. ECF No. 263 at 31 (Jury Instruction No. 30); F.D.I.C. v. Castetter, 184 F.3d 1040, 1043 (9th Cir. 1999) ("California's business judgment rule . . . requires directors to perform their duties in good faith and as an ordinarily prudent person in a like circumstance would.  It immunizes directors from liability if they can establish that they acted in accordance with this standard of care.").  Defendants do not challenge the instruction's wording, which stated that to trigger the defense a "defendant must show he acted in good faith, made a reasonable inquiry when the need therefore was indicated by the circumstances, and did not have information that would have made reliance unwarranted." ECF No. 263 at 31.  After being so instructed, it was up to the jury to decide if each defendant met his burden to trigger the rule's protection.  The jury, which is presumed to follow the court's instructions, Kansas v. Marsh, 548 U.S. 163, 179 (2006), found each defendant liable.

FDIC v. Ching, Case No. 2:13-cv-01710-KJM-EFB (Jan. 26, 2018). 

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