CopyCited 65 times | Published | Supreme Court of Georgia | Jul 11, 2014 | 761 S.E.2d 332
...Nevertheless, as we consider the implications of the
pertinent statutory law, we will consider the extent to which Flexible Products
and Brock Built might find support in the statutes.6
2. Our examination of the statutory law starts with OCGA §
7-1-490 (a),
which concerns the care with which bank officers and directors are to perform
their duties:
Directors and officers of a bank or trust company shall discharge
the duties of their respective positions in good faith and...
...n question
that would cause such reliance to be unwarranted. A director or
officer who so performs his duties shall have no liability by reason
of being or having been a director or officer of the bank or trust
company.
OCGA §
7-1-490 (a)....
...To that end, “we must read the statutory text in its most natural and
reasonable way, as an ordinary speaker of the English language would.” Id.
17
(citations and punctuation omitted). And although the statutory arguments in
this case are chiefly about OCGA §
7-1-490 (a), we must take care not to limit
our consideration to the words of subsection (a) alone....
...We conclude
as well, however, that subsection (a) is inconsistent with the different sort of
rule described by the Court of Appeals in Flexible Products and Brock Built.
To begin, we note that the general standard of care described in the first
sentence of OCGA §
7-1-490 (a) does not appear to differ in any meaningful
way from the standard adopted at common law in Georgia, see Woodward, 149
18
Ga....
...Indeed, the general standard of care is followed
immediately in subsection (a) by provisions about the information upon which
a bank officer or director may properly rely, provisions that, in turn, are
followed immediately by the provision about liability. See OCGA §
7-1-490 (a).
Besides the structure of the subsection (a), we note that another provision of the
Banking Code provides that an “underlying objective” of the whole Code —
including OCGA §
7-1-490 (a) — is to allow “[o]pportunity for management of
19
financial institutions to exercise their business judgment.”7 OCGA §
7-1-3 (a)
(8).
Most important, however, is the statutory pedigree of OCGA §
7-1-490
(a), which shows that the statute was meant to retain the common law....
...ness decision, see, e.g., Shannon,
166 Ga. at 432-433, 436, but not as to the wisdom of the judgment itself.
The current statutory provisions about liability and the information upon
which an officer or director may rely were added to OCGA §
7-1-490 (a) a few
years later....
...To the contrary, the preamble says only that the amendment
was intended to “confirm and clarify the current right of directors to rely upon
information, opinions, reports or statements regularly furnished them by others.”
Id. (preamble).
In the light of this statutory history, we conclude that OCGA §
7-1-490 (a)
is perfectly consistent with the business judgment rule acknowledged at
common law in the decisions of this Court....
...meant to adhere to the common law.” May, ___ Ga. at ___. It also is consistent
with the understanding of the New York Court of Appeals, which has
characterized N.Y. Bus. Corp. Law § 717 (a) — the current version of which is
substantially similar to the current version of OCGA §
7-1-490 (a)10 — as a
10
N.Y....
...It is consistent as well with the
approach of the Eleventh Circuit in FDIC v. Stahl, 89 F3d 1510 (11th Cir. 1996),
a decision that we find persuasive. There, the Eleventh Circuit addressed the
coexistence of the business judgment rule and a Florida statute that closely
resembled OCGA §
7-1-490 (a)....
...business judgment, unless they acted fraudulently, illegally,
oppressively, or in bad faith.
Id. at 1518. We conclude that the business judgment rule acknowledged at
common law in the decisions of this Court is consistent with, and has not been
superseded by, OCGA §
7-1-490 (a).
As our citation of Stahl suggests, however, the absolute rule of Flexible
Products and Brock Built — a rule that all claims that sound in ordinary
negligence are barred by the business judgment rule, leaving room only for
claims of gross negligence against officers and directors — does not fare as well
in the face of the statute. The implication of the liability provision in OCGA §
26
7-1-490 (a), as we have explained, is that bank officers and directors may be
liable for a failure to exercise ordinary care with respect to the way in which
business decisions are made....
...als relied in Flexible
27
Products — and in Brock Built too, insofar as it cited Flexible Products, see note
6, supra — are inconsistent with the absolute rule articulated in those decisions.
Like OCGA §
7-1-490 (a), the Corporation Code requires non-bank officers and
directors to “discharge [their] duties . . . in good faith . . . and [w]ith the care an
ordinarily prudent person in a like position would exercise under similar
circumstances.” OCGA §§
14-2-830 (a) (2) (directors) and
14-2-842 (a) (2)
(officers). And also like OCGA §
7-1-490 (a), the Corporation Code provides:
[An officer or director] is not liable to the corporation or to its
shareholders for any action taken as [an officer or director], or any
failure to take any action, if he performed th...
...claims against bank officers and directors that sound in ordinary negligence,
bank management will be too much deterred from taking risks, to the detriment
of Georgia banks and consumers alike. Even if that were so, Flexible Products
and Brock Built are inconsistent with OCGA §
7-1-490 (a), and “this Court does
not have the authority to rewrite statutes.” State v....
...demand the “care which is exercised by ordinary prudent persons under the
same or similar circumstances,” but instead requires only the “diligence, care,
and skill which ordinarily prudent men would exercise under similar
circumstances in like positions.” OCGA §
7-1-490 (a) (emphasis supplied). In
other words, bank officers and directors are only expected to exercise the same
diligence and care as would be exercised by “ordinarily prudent” officers and
directors of a similarly situated bank.
Second, OCGA §
7-1-490 (a) conclusively presumes that it is reasonable
for an officer or director to rely upon certain information as a part of the
31
diligence with which the standard of ordinary care is concerned....
...with a provision of the articles of incorporation or
bylaws, as to matters within that committee’s
designated authority, which committee the director or
officer reasonably believes to merit confidence[.]
OCGA §
7-1-490 (a)....
...If an officer or director relies in good faith on information
described in subsection (a), the reasonableness of his reliance cannot be
questioned in court.11
11
Whether the information upon which an officer or director relied is, in fact, the sort
of information described in OCGA §
7-1-490 (a) — whether it was, for instance, “prepared
or presented by ....
...s presented” — can be
questioned, of course. And good faith can be questioned as well, including by proof that the
officer or director “ha[d] knowledge concerning the matter in question that would cause such
reliance to be unwarranted.” OCGA §
7-1-490 (a).
32
Finally, the business judgment rule makes clear that, when a business
decision is alleged to have been made negligently, the wisdom of the decision
is ordinarily insulated fro...
CopyCited 2 times | Published | Supreme Court of Georgia | Sep 22, 2014 | 763 S.E.2d 879
...a now-defunct state-chartered
Georgia bank, the Eleventh Circuit Court of Appeals has certified the following
questions for resolution by this Court:
(1) Does a bank director or officer violate the standard of care
established by OCGA §
7-1-490 when he acts in good faith but fails
to act with “ordinary diligence,” as that term is defined in OCGA §
51-1-2?
(2) In a case like this one, applying Georgia’s business judgment
rule, can the bank officer o...
...In a similar case presenting questions certified by a federal district court,
this Court has recently considered the interplay between the Georgia Banking
Code’s provisions prescribing the responsibility of bank directors and officers,
OCGA §
7-1-490, and Georgia’s common law business judgment rule....
...Loudermilk, __ Ga. __, 2014 WL 3396655 (July 11,
2014). Our opinion in Loudermilk is dispositive of the questions presented
here, which we answer as follows.
(1) A bank director or officer may violate the standard of care established
by OCGA §
7-1-490, even where he acts in good faith, where, with respect to
the process by which he makes decisions, he fails to exercise the diligence, care,
and skill of “ordinarily prudent men [acting] under similar circumstances in like
positions.” OCGA §
7-1-490; Loudermilk, 2014 WL 3396655, at *9....
...ers and directors of a similarly situated
bank.” Id. at *12.
(2) In a case like this one, the bank officer or director defendants may be
held individually liable if they are shown to have violated the standard of care
established by OCGA §
7-1-490, as construed in Loudermilk, supra.
Certified questions answered....
Published | Supreme Court of Georgia | Jul 11, 2014 | 763 S.E.2d 879
...Nevertheless, as we consider the implications of the
pertinent statutory law, we will consider the extent to which Flexible Products
and Brock Built might find support in the statutes.6
2. Our examination of the statutory law starts with OCGA §
7-1-490 (a),
which concerns the care with which bank officers and directors are to perform
their duties:
Directors and officers of a bank or trust company shall
discharge the duties of their respective positions in good fai...
...n question
that would cause such reliance to be unwarranted. A director or
officer who so performs his duties shall have no liability by reason
of being or having been a director or officer of the bank or trust
company.
OCGA §
7-1-490 (a)....
...To that end, “we must read the statutory text in its most natural and
reasonable way, as an ordinary speaker of the English language would.” Id.
(citations and punctuation omitted). And although the statutory arguments in
17
this case are chiefly about OCGA §
7-1-490 (a), we must take care not to limit
our consideration to the words of subsection (a) alone....
...We conclude as well,
however, that subsection (a) is inconsistent with the different sort of rule
described by the Court of Appeals in Flexible Products and Brock Built.
To begin, we note that the general standard of care described in the first
sentence of OCGA §
7-1-490 (a) does not appear to differ in any meaningful
way from the standard adopted at common law in Georgia, see Woodward, 149
Ga....
...Indeed, the general standard of care is followed
immediately in subsection (a) by provisions about the information upon which
a bank officer or director may properly rely, provisions that, in turn, are
followed immediately by the provision about liability. See OCGA §
7-1-490 (a).
Besides the structure of subsection (a), we note that another provision of the
Banking Code provides that an “underlying objective” of the whole Code —
including OCGA §
7-1-490 (a) — is to allow “[o]pportunity for management of
19
financial institutions to exercise their business judgment.”7 OCGA §
7-1-3 (a)
(8).
Most important, however, is the statutory pedigree of OCGA §
7-1-490
(a), which shows that the statute was meant to retain the common law....
...ness decision, see, e.g., Shannon,
166 Ga. at 432-433, 436, but not as to the wisdom of the judgment itself.
The current statutory provisions about liability and the information upon
which an officer or director may rely were added to OCGA §
7-1-490 (a) a few
years later....
...To the contrary, the preamble says only that the amendment
was intended to “confirm and clarify the current right of directors to rely upon
information, opinions, reports or statements regularly furnished them by others.”
Id. (preamble).
In the light of this statutory history, we conclude that OCGA §
7-1-490 (a)
is perfectly consistent with the business judgment rule acknowledged at
common law in the decisions of this Court....
...meant to adhere to the common law.” May,
295 Ga. at 397. It also is consistent
with the understanding of the New York Court of Appeals, which has
characterized N.Y. Bus. Corp. Law § 717 (a) — the current version of which is
substantially similar to the current version of OCGA §
7-1-490 (a)10 — as a
10
N.Y....
...It is consistent as well with the
approach of the Eleventh Circuit in Fed. Deposit Ins. Corp. v. Stahl, 89 F3d
1510 (11th Cir. 1996), a decision that we find persuasive. There, the Eleventh
Circuit addressed the coexistence of the business judgment rule and a Florida
statute that closely resembled OCGA §
7-1-490 (a)....
...business judgment, unless they acted fraudulently, illegally,
oppressively, or in bad faith.
Id. at 1518. We conclude that the business judgment rule acknowledged at
common law in the decisions of this Court is consistent with, and has not been
superseded by, OCGA §
7-1-490 (a).
As our citation of Stahl suggests, however, the absolute rule of Flexible
Products and Brock Built — a rule that all claims that sound in ordinary
negligence are barred by the business judgment rule, leaving room only for
claims of gross negligence against officers and directors — does not fare as well
in the face of the statute. The implication of the liability provision in OCGA §
26
7-1-490 (a), as we have explained, is that bank officers and directors may be
liable for a failure to exercise ordinary care with respect to the way in which
business decisions are made....
...als relied in Flexible
27
Products — and in Brock Built too, insofar as it cited Flexible Products, see note
6, supra — are inconsistent with the absolute rule articulated in those decisions.
Like OCGA §
7-1-490 (a), the Corporation Code requires non-bank officers and
directors to “discharge [their] duties . . . in good faith . . . and [w]ith the care an
ordinarily prudent person in a like position would exercise under similar
circumstances.” OCGA §§
14-2-830 (a) (1), (2) (directors) and
14-2-842 (a) (1),
(2) (officers). And also like OCGA §
7-1-490 (a), the Corporation Code
provides:
[An officer or director] is not liable to the corporation or to its
shareholders for any action taken as [an officer or director], or any
failure to take any action, if he perfo...
...claims against bank officers and directors that sound in ordinary negligence,
bank management will be too much deterred from taking risks, to the detriment
of Georgia banks and consumers alike. Even if that were so, Flexible Products
and Brock Built are inconsistent with OCGA §
7-1-490 (a), and “this Court does
not have the authority to rewrite statutes.” State v....
...ordinarily prudent persons under the
same or similar circumstances,” OCGA §
51-1-2, but instead requires only the
“diligence, care, and skill which ordinarily prudent men would exercise under
similar circumstances in like positions.” OCGA §
7-1-490 (a) (emphasis
supplied)....
...In other words, bank officers and directors are only expected to
exercise the same diligence and care as would be exercised by “ordinarily
prudent” officers and directors of a similarly situated bank.
31
Second, OCGA §
7-1-490 (a) conclusively presumes that it is reasonable
for an officer or director to rely upon certain information as a part of the
diligence with which the standard of ordinary care is concerned....
...incorporation or the bylaws, as to matters within that
committee’s designated authority, which committee the
director or officer reasonably believes to merit
confidence[.]
32
OCGA §
7-1-490 (a)....
...ith and with due care. The
business judgment rule does not insulate “mere dummies or figureheads” from
11
Whether the information upon which an officer or director relied is, in fact, the sort
of information described in OCGA §
7-1-490 (a) — whether it was, for instance, “prepared
or presented by ....
...s presented” — can be
questioned, of course. And good faith can be questioned as well, including by proof that the
officer or director “ha[d] knowledge concerning the matter in question that would cause such
reliance to be unwarranted.” OCGA §
7-1-490 (a).
33
liability, of course, but it never was meant to do so....
