I suspect that many practitioners would assume that the law of the state of incorporation would determine the viability of an exculpation clause in a corporation's articles of incorporation.  Thus, I was surprised to read that this point was the subject of dispute in In re HVI Cat Canyon, Inc., 2024 WL 863297 (Bankr. C.D. Cal. Feb. 29, 2024). 

The case involved an action by the bankruptcy trustee of a Colorado corporation against its erstwhile chief executive officer for, among other things, breach of fiduciary duty.  The former officer, who was also a director and shareholder, argued that he was protected by an exculpation clause in the corporation's articles of incorporation that was valid under Colorado law.  The trustee countered that California Corporations Code Section 204(a)(10)(iv) bars exculpatory clauses for "acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders."   

Why California?  The trustee argued that under Section 306 of the Restatement (Second) of Conflict of Laws, the laws of the state of incorporation govern unless some other state has a more "significant relationship".   The trustee claimed that California's relationship  was more significant because of the location of the corporation's property, the number of California agencies that are creditors, and the existence of a multimillion dollar judgment for environmental violations in California.   The judge did not decide the choice of law question, pending further discovery.

I find the case puzzling.  Section 306 concerns the liability of a controlling shareholder, it does not concern the liability of officers.  Section 204(a)(10) concerns exculpation of directors.  Thus, it is unclear to me why Section 306 should be applied to the liability of the defendant in his capacity as a director or officer.  It is also unclear to me why Section 204(a)(10)(ix) should apply to the defendant in his capacity of either an officer or a controlling shareholder.  Finally, there is no mention of the "internal affairs doctrine".