Warren v. Century Bankcorporation, Inc.

ALMA WILSON, Justice,

dissenting:

A necessary element of the corporate opportunity rule is that the opportunity in question be one of practical advantage to the complaining corporation. Equity-Corp. v. Milton, 43 Del.Ch. 160 , 221 A.2d 494 (1966) Thus, in advancing the determination of whether any particular appropriation of a business opportunity is fair to the corporation, the interest of the corporation in the opportunity (or the absence thereof) is relevant.

In the case of Gross v. Neuman, 40 A.D.2d 772 , 337 N.Y.S.2d 623 (N.Y.App.Div.1972), the Court held that a corporate president had not deprived the corporation of an opportunity where the corporation had two hospital properties that it could not operate due to a public health statute. With the approval of the board of directors, the president entered into a twenty year lease arrangement for the properties. Inasmuch as the corporation, by law, was precluded from operation of the opportunity in question, the corporation was not deprived of the opportunity. It is similarly my opinion that inasmuch as the bank in this case, by law, was at the relevant time precluded from operation of the independent business opportunity in question, it was not deprived of that opportunity by Action. The bank had no expectancy /business interest in the opportunity involved until after the repeal of the law prohibiting branch banking. The furnishing by one corporation to another, having common directors, of information advantageous to the latter’s business and which relates to matters in which the former has no business interest or expectancy, does not constitute diversion of its assets or business opportunities for which the directors are chargeable. Diedrick v. Helm, 217 Minn. 483 , 14 N.W.2d 913 (1944). The opportunity did not embrace an area adaptable to the bank's business which it could legally pursue at that time and into which it might easily or logically expand.

Moreover, the proof proffered to support a conclusion that the bank necessarily would have realized any of the loan transactions of Action, but for the operation of Action, is untenable. The evidence actually shows the bank’s business dealings with Action resulted in increased revenues for both majority and minority stockholders of the banking corporation.

Finally, the undue restraint of business judgment, for better or for worse, on the part of corporate officers and directors is contrary to fundamental concepts of free enterprise and independent innovation for the benefit of all. The law imposes business management of a corporation on its board of directors. A business corporation being profit oriented, the decisions of the directors involve risk evaluation, assumption or avoidance, and some of these decisions may eventually prove erroneous. In the case at hand the officers and directors were advised by legal counsel before-the-fact that the operation of Action as proposed would not violate banking law. In this respect, it is said, that,

“... courts recognize that after-the-fact litigation is a most imperfect device to evaluate corporate business decisions; the circumstances surrounding such decisions are not easily reconstructed in a courtroom years later. The rule [Business Judgment Rule] recognizes that shareholders to a very real degree voluntarily undertake the risk of bad business judgment; investors need not buy stock, for investment markets offer an array of opportunities less vulnerable to mistakes in judgment by corporate officers. In the exercise of what is genuinely a free choice, the quality of a firm's management is often decisive and information is available from professional advisors. For these reasons corporate decisions by directors enjoy the presumption of sound business judgment.” 18B Am.Jur.2d Corporations § 1705.

Courts traditionally have been reluctant to impose personal or vicarious liability for corporate business decisions upon those charged with the weight of those decisions. Doctrinally, this principle has been labeled *855 the Business Judgment Rule or “prudent man” standard. Under this rule, the directors of a corporation who are charged with decision-making responsibility are not penalized for the exercise of independent free thought and entrepreneurial and risk-taking activities, so long as performed in good faith, and with that diligence, care, and skill which ordinarily prudent men would exercise under similar circumstances in like position. Such premise has long been the sustaining force of American ingenuity and comprises the standard embraced under Oklahoma law to this date. 18 O.S. 1981 § 1.34. Also See, Hoye v. Meek, 795 F.2d 893 (10th Cir.1986). Absent fraud, bad faith, gross overreaching, or abuse of discretion, the exercise of business judgment by corporate officers and directors should now, as in past cases, be respected by the courts.

I recede from this Court’s abrogation of the Business Judgment Rule.