Contractual Limitations on the Business Judgment Rule

A recent case, Scheenstra v. Califontia Dairies, Inc. (2013) 213 Cal.App.4th 370 found a board of directors exceeded their discretion when they adopted a quota program in breach of their contractual obligations to one of its members. The members appealed claiming that the business judgment rule insulated them from liability for the good faith decisions of its directors in the exercise of business judgment. The Court of Appeals affirmed the judgment, explaining that the business judgment rule does not give the board discretion to rewrite its contracts. Because the Board's action breached its contract with its member, the business judgment rule did not apply. If you anticipate any corporate action that may potentially conflict with contractual obligations, let us know so we can help you through these dangerous waters.

Categories: Corporate Law

News & Updates

Jun
18
As we’ve discussed before, California’s new “paid sick leave” law takes effect July 1st. The new law contains several traps for unwary employers. In addition to providing paid time off benefits, there are other important requirements:  W… Read More
May
19
Effective July 1, 2015, under the Healthy Workplaces, Healthy Families Act of 2014; all California employers must provide their California employees with at least three days or 24 hours of paid sick leave per year. COVERED EMPLOYERS AND EMPLOYEES  T… Read More
Oct
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California’s overtime rules are very specific that employers shall be responsible for overtime compensation and define “hours worked” as “the time during which an employee is subject to the control of an employer, and includes all the time th… Read More