Weakening Protection Of The Business Judgment Rule

District courts nationwide have been chipping away at the protection offered by the business judgment rule. A Texas federal court recently held that the rule did not salvage a conflict-of-interest case for a Chapter 7 trustee who wanted to hire his own law firm to represent the estate. In another case, albeit one that has been subject to some criticism, a board attempted to invoke the rule in response to a shareholder suit challenging its decision to award a CEO bonus. The business judgment rule “imposes a burden of proof, not a burden of pleading,” said the judge, in denying a motion to dismiss.