Can a San Diego shareholder in a corporation file suit against a corporate director or the corporation’s Board of Directors?  Can a corporate director be sued for bad faith in order to hold them accountable for bad decisions?  This is a complex area of law, and every case is truly unique.  Generally speaking, directors in California are protected by several legal statutes that limit their liability.  However, directors are held to high standards when it comes to the fulfillment of their fiduciary duties: the Duty of Care and the Duty of Loyalty.

The Duty of Care basically says that Directors must act in a “deliberate and informed” manner and use all available information and materials when making corporate decisions.  The standard applied by California’s Courts is often referred to as the “business judgment rule.”  Would a reasonable person come to the same conclusions?

Can a corporate director be sued for bad faith in the wake of decisions that are not in the interests of the corporation? In effect, a California director cannot be sued for a bad business decision that any reasonable business professional would have made.  However, it may be appropriate to challenge decisions based upon negligence, breach of their fiduciary duty, or the failure to act in good faith.

The Duty of Loyalty holds the Director to a responsibility of protecting the interests of the corporation and its shareholders, and put the needs of the corporations above their own self interests.  Abuse of their position to achieve “sweetheart deals” or to conduct transactions or influence decisions that bring profit to the Director at the expense of the corporation is a violation of the Duty of Loyalty.  Conflict of interest cases are quite complex and it is important to work with experienced and seasoned San Diego corporate attorneys.

Pro-Tip: “For example, we’ve, we’ve had so many shareholder fights where a group of friends or a group of friends who know friends, maybe 30 people invest in a company and it’ll be doing well, but not great. And the investors, the shareholders won’t be receiving disclosures, or they will be receiving them, but they sort of don’t add up. And then they do an investigation and they come to some law firm like ours and they say, well, let’s, let’s get in there seeing the books and records and you get some pushback from the company.

And that’s when all the hairs in your neck stand up and you come to the Watkins firm and we file a motion. And we discover through our due diligence that the company’s doing very good and that they also formed an offshore corporation of the same name. And they’ve taken all the assets and they’re all driving Rolls-Royces. So this has happened more times than I can say, because it just does happen. Nobody fights over anything unless there’s money involved. If it’s just doing okay, they would tell the truth and say, it’s all great. But if that big money offer comes in the door and they have a way of, of keeping it for themselves, it’s very tempting for human nature to turn that down.

Don’t let the term shareholder or investor make you think you don’t have any rights. If something genuinely doesn’t seem right, if the numbers don’t precisely add up, if your instincts tell you something is up, in my experience, something is up!” – Dan Watkins, Founding Partner

At the Watkins Firm, we have more than four decades of experience in corporate matters and associated litigation.  We have filed several successful derivative lawsuits on behalf of corporate shareholders who wish to protect the corporation from actions of its owners, officers or directors.

Can a corporate director be sued for bad faith and decisions that violate the conscience? You can file suit against a corporate director for many actionable reasons and to protect your interests as a corporate shareholder.  If you are concerned about the behavior, decisions or actions of a corporate Director in California we invite you to review our podcast Episode 14 – Shareholders’ Rights as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.