Liability of officers and directors as fiduciaries
- posted: Jun. 19, 2020
Plaintiffs often attempt to hold officers and directors individually liable as fiduciaries. The Nevada Supreme Court has recently held that individual liability has a very high threshold. Chur v. Eighth Judicial Dist. Court of Nev., 458 P.3d 336 (Nev. 2020).
NRS 78.138 provides the sole mechanism to hold directors and officers individually liable for damages in Nevada. NRS 78.138(3) provides that "[a] director or officer is not individually liable for damages as a result of an act or failure to act in his or her capacity as a director or officer except under circumstances described in subsection 7 [of that statute]."
NRS 78.138(7) requires a two-step analysis to impose individual liability on a director or officer.
1. the presumptions of the business judgment rule must be rebutted. The business judgment rule states that "directors and officers, in deciding upon matters of business, are presumed to act in good faith, on an informed basis and with a view to the interests of the corporation." NRS 78.138(3).
2. The "director's or officer's act or failure to act" must constitute "a breach of his or her fiduciary duties" and that breach must further involve "intentional misconduct, fraud or a knowing violation of law” NRS 78.138(7)(b)(1)-(2) (emphasis added).
NRS 78.138 provides for the sole circumstance under which a director or officer may be held individually liable for damages stemming from the director's or officer's conduct in an official capacity.
To prove an intentional or knowing violation of the law, the claimant must establish that the director or officer had knowledge that the alleged conduct was wrongful in order to show a "knowing violation of law" or "intentional misconduct" pursuant to NRS 78.138(7)(b). Knowledge of wrongdoing, as required by NRS 78.138(7)(b), is an appreciably higher standard than gross negligence. This is a very high standard to meet for director or officer liability.
When questions of corporate or officer liability arise, our firm stands ready to assist you in your business matters.