TITLE 14 CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS

Section 2. Business Corporations, 14-2-101 through 14-2-1703.

ARTICLE 8 DIRECTORS AND OFFICERS

14-2-842. Standards of conduct for officers; presumption of good faith and ordinary care.

An officer shall perform his or her duties in good faith and with the degree of care which an ordinarily prudent person in a like position would use under similar circumstances.
In performing his or her duties an officer may rely upon:
1. Other officers, employees, or agents of the corporation whom the officer reasonably believed to be reliable and competent in the functions performed; and
2. Information, data, opinions, reports, statements provided by officers, employees, or agents of the corporation, legal counsel, public accountants, investment bankers, or other persons as to matters involving the skills, expertise, or knowledge reasonably believed to be reliable and within such person's professional or expert competence.
There shall be a presumption that the process an officer followed in arriving at decisions was done in good faith and that such officer has exercised ordinary care; provided, however, that this presumption may be rebutted by evidence that such process constitutes gross negligence by being a gross deviation of the standard of care of an officer in a like position under similar circumstances.
Nothing contained in this Code section shall:
1. In any instance when fairness is at issue, such as consideration of the fairness of a transaction to the corporation as evaluated under paragraph (3) of subsection (c) of Code Section 14-2-864, alter the burden of proving the fact or lack of fairness otherwise applicable;
2. Alter the fact or lack of liability of an officer under the Official Code of Georgia Annotated, including the governance of the consequences of a transactional interest under Code Section 14-2-864;
3. Affect any rights to which the corporation or its shareholders may be entitled under another law of this state or of the United States; or
4. Deprive an officer of the applicability, effect, or protection of the business judgment rule.

(Code 1981, §14-2-842, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 2017, p. 693, § 3/HB 192.)

The 2017 amendment, effective July 1, 2017, rewrote this Code section. See Editor's note for applicability.

Editor's notes.

- Ga. L. 2017, p. 693, § 4/HB 192, not codified by the General Assembly, provides that: "This Act shall apply only to causes of action arising on or after July 1, 2017."

Law reviews.

- For survey article on business associations law, see 59 Mercer L. Rev. 35 (2007). For survey article on trial practice and procedure, see 59 Mercer L. Rev. 423 (2007). For article, "2014 Georgia Corporation and Business Organization Case Law Developments," see 20 Ga. St. B. J. 26 (April 2015). For article on the 2017 amendment of this Code section, see 34 Ga. St. U.L. Rev. 1 (2017). For annual survey on trial practice and procedure, see 69 Mercer L. Rev. 321 (2017).

COMMENT

Source: Model Act, § 8.42.

This section provides that a nondirector officer with discretionary authority must meet the same standards of conduct required of directors under Section14-2-830. This preserves the identity of treatment that formerly existed in Georgia, under § 14-2-152.1. But an officer's ability to rely on information, reports, or statements, may, depending upon the circumstances of the particular case, be more limited than in the case of a director in view of the greater obligation he may have to be familiar with the affairs of the corporation. See Section14-2-842(b). This preserves their treatment in former § 14-2-152.1(b)(2). Nondirector officers with more limited discretionary authority may be judged by a narrower standard, though every corporate officer or agent owes duties of fidelity, honesty, good faith, and fair dealing to the corporation. The Comment to Section14-2-830 is generally applicable to nondirector officers as well as to directors.

Subsection (a)(3) of the Model Act, which required officers to act in a manner they reasonably believe to be in the best interests of the corporation, was deleted from the Code. This is consistent with the provisions relating to directors, and preserves the existing standards of Georgia law. See Section 14-2-830(a).

Subsection (b)(2) of the Model Act was amended to specifically mention investment bankers as experts upon whom officers may rely. This preserves former law under § 14-2-152.1(2)(B). This is consistent with the treatment of directors. See Section14-2-830(b)(2).

Subsection (d) of the Model Act was amended to limit its protection to claims brought on behalf of the corporation or its shareholders, in the same manner as Section 14-2-830(d).

Cross-References Appointment of officers, see § 14-2-840. Director conflict of interest, see § 14-2-860 et seq. Director standards of conduct, see § 14-2-830. Duties of officers, see § 14-2-841. Indemnification, see § 14-2-850 et seq. Resignation and removal of officers, see § 14-2-843.

JUDICIAL DECISIONS

Business judgment rule applied.

- In an action against directors and officers of a corporation for breach of fiduciary obligations, when there was evidence that the directors and officers consulted legal and financial experts throughout the solicitation and negotiation for a purchaser for the corporation, applying the business judgment rule, the directors and officers satisfied their statutory duties. Munford v. Valuation Research Corp., 98 F.3d 604 (11th Cir. 1996), cert. denied, 522 U.S. 1068, 118 S. Ct. 738, 139 L. Ed. 2d 675 (1998).

In an action by non-rehired anesthesiologists against other anesthesiologists in their former group that were rehired by a hospital, the non-hired doctors failed to demonstrate a breach of fiduciary duty or fraud on the part of the doctors who were hired; they made a business judgment with advice of counsel and were free to prepare to compete prior to the group's shareholders' decision to terminate the group's contract with the hospital. Sewell v. Cancel, 331 Ga. App. 687, 771 S.E.2d 388 (2015).

Tortious interference with fiduciary relationship.

- A claim against a third party for tortious interference with the fiduciary relationship between a corporation and its officer is one for tortious interference with contractual rights, and states a claim under Georgia law sufficient to withstand summary judgment. Rome Indus., Inc. v. Jonsson, 202 Ga. App. 682, 415 S.E.2d 651, cert. denied, 202 Ga. App. 903, 415 S.E.2d 651 (1992).

Fiduciary duty in corporate bankruptcy.

- In a bankruptcy proceeding, revesting of corporate governance to the directors and officers carries with it a fiduciary obligation to creditors under both state law and the Bankruptcy Code. In re Concrete Prods., Inc., 208 Bankr. 1000 (Bankr. S.D. Ga. 1996).

There is no meaningful difference between the two standards set forth in O.C.G.A. §§ 14-2-842(a)(2) and51-1-2. Rosenfeld v. Rosenfeld, 286 Ga. App. 61, 648 S.E.2d 399 (2007), cert. denied, 2007 Ga. LEXIS 613 (Ga. 2007).

Application in adversary proceeding in officer's bankruptcy.

- Duties of a debtor, as an officer and director of a corporation, as outlined in O.C.G.A. §§ 14-2-830 and14-2-842, did not create any statutory fiduciary duties that, if breached, would provide grounds for non-dischargeability under 11 U.S.C. § 523(a)(4). Omega Cotton Co. v. Sutton (In re Sutton), Bankr. (Bankr. M.D. Ga. Oct. 2, 2008).

Jury question as to whether duty of good faith breached.

- To the extent that trust beneficiaries claimed that trustees, in their roles as corporate officers and directors of entities in which the trusts held shares, reduced the pro rata dividends paid through the entities or had retained earnings, there was no breach of fiduciary duty; but a jury question remained as to whether the trustees' subjecting pro rata distributions to a code of conduct (for which there was no provision in the corporate documents) was in bad faith. Rollins v. Rollins, 338 Ga. App. 308, 790 S.E.2d 157 (2016).

Jury instructions.

- The trial court properly charged the jury that a corporate officer's fiduciary duty required the officer to exercise "all due care and diligence," as there was no meaningful difference between this and the "ordinarily prudent person" standard of O.C.G.A. § 14-2-842(a)(2); furthermore, the trial court had first charged the standard as worded in the statute, then simply explained this standard as referring to "all due care and diligence." Rosenfeld v. Rosenfeld, 286 Ga. App. 61, 648 S.E.2d 399 (2007), cert. denied, 2007 Ga. LEXIS 613 (Ga. 2007).

Cited in Parks v. Multimedia Techs., Inc., 239 Ga. App. 282, 520 S.E.2d 517 (1999); Lubin v. Skow, F.3d (11th Cir. June 14, 2010) (Unpublished).

RESEARCH REFERENCES

Am. Jur. 2d.

- 18B Am. Jur. 2d, Corporations, § 1426 et seq.

C.J.S.

- 19 C.J.S., Corporations, §§ 558 et seq., 575, 576.

ALR.

- Liability of corporation for fraud of officer for his own benefit but within his apparent authority, 43 A.L.R. 615.

Provision of constitution or statute making directors or officers of corporation liable for money embezzled or misappropriated, 46 A.L.R. 1164.

Right of creditor of corporation to maintain personal action against directors or officers for mismanagement, 50 A.L.R. 462.

Responsibility of corporation for misstatements by officer or employee to induce or influence purchase of stock, 66 A.L.R. 1450.

Assignability of claim against officers or directors of corporation for breach of duty, 80 A.L.R. 875.

Validity, construction, and effect of clause in obligation of corporation that it is issued without recourse against officers or directors, 97 A.L.R. 1157.

Sole actor doctrine where officer or agent of corporation acting adversely to it is its sole representative in the transaction, 111 A.L.R. 665.

Recovery against corporate directors or officers for fraud or mismanagement as affected by releases, ratification, waiver, or consent by some, but not all, of the stockholders, 120 A.L.R. 238.

Construction and application of statutes making corporate officers or directors liable in respect of loans or advances to stockholders or officers, 129 A.L.R. 1258.

Personal liability of corporate directors or officers under statute imposing liability in respect of excessive indebtedness, as affected by payment by the corporation (or its receiver, assignee in insolvency, or trustee in bankruptcy) of all or part of the excessive indebtedness, 130 A.L.R. 824.

Personal liability of corporate directors or officers to third persons for restitution, or for damages for conversion, under circumstances rendering the corporation itself liable, 152 A.L.R. 696.

Accountability of corporate directors or officers for profit from activities beyond the corporate powers, but involving the use of information or opportunities available to them by reason of their position in the corporation, 153 A.L.R. 663.

Right of corporate officer to purchase corporate assets from corporation, 24 A.L.R.2d 71.

Liability of corporate directors or officers for negligence in permitting conversion of property of third persons by corporation, 29 A.L.R.3d 660.

Liability of corporate officer or director for commission or compensation received from third person in connection with that person's transaction with corporation, 47 A.L.R.3d 373.

What business opportunities are in "line of business" of corporation for purposes of determining whether a corporate opportunity was presented, 77 A.L.R.3d 961.

Personal civil liability of officer or director of corporation for negligence of subordinate corporate employee causing personal injury or death of third person, 90 A.L.R.3d 916.

Propriety of attorney who has represented corporation acting for corporation in controversy with officer, director, or stockholder, 1 A.L.R.4th 1124.

Financial inability of corporation to take advantage of business opportunity as affecting determination whether "corporate opportunity" was presented, 16 A.L.R.4th 185.

Purchase of shares of corporation by director or officer as usurpation of "corporate opportunity,", 16 A.L.R.4th 784.

Fairness to corporation where "corporate opportunity" is allegedly usurped by officer or director, 17 A.L.R.4th 479.

Liability of corporate director, officer, or employee for tortious interference with corporation's contract with another, 72 A.L.R.4th 492.

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