Florida Business Corporation Act and Director Liability

The Florida Business Corporation Act, codified at Florida Statute section 607.0101, et seq., provides in pertinent part, as follows, with regard to director liability: 

A director is not personally liable for monetary damages to the corporation or any other person for any statement, vote, decision, or failure to act, regarding corporate management or policy, by a director, unless: 

(a) The director breached or failed to perform his or her duties as a director; and

(b) The director’s breach of, or failure to perform, those duties constitutes:

1. A violation of the criminal law, unless the director had reasonable cause to believe his or her conduct was lawful or had no reasonable cause to believe his or her conduct was unlawful. A judgment or other final adjudication against a director in any criminal proceeding for a violation of the criminal law estops that director from contesting the fact that his or her breach, or failure to perform, constitutes a violation of the criminal law; but does not estop the director from establishing that he or she had reasonable cause to believe that his or her conduct was lawful or had no reasonable cause to believe that his or her conduct was unlawful;

2. A transaction from which the director derived an improper personal benefit, either directly or indirectly;

3. A circumstance under which the liability provisions of s. 607.0834 are applicable;

4. In a proceeding by or in the right of the corporation to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the corporation, or willful misconduct; or

5. In a proceeding by or in the right of someone other than the corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property

Fla. Stat. § 607.0831 (2012) (emphasis added).

The foregoing rule is better known as the business judgment rule, which has been traditionally applied to protect corporate directors from personal liability.  Hollywood Towers Condo. Ass’n v. Hampton, 40 So. 3d 784 (Fla. 4th DCA 2010).   However, the presumption of correctness is limited in nature as demonstrated by the Third District Court of Appeal’s decision in Aerospace Accessory Serv., Inc. v. Abiseid, 943 So. 2d 866 (Fla. 3d DCA 2006).  In Aerospace Accessory Service, Roberto Abiseid (“Abiseid”) was an officer, director and salesperson for Aerospace.  He earned a 10% commission on services and parts sold by him.  International Aero Components (“IAC”) was a customer of Aerospace.  

Abiseid had received a corporate directive from the President and the board of directors of Aerospace prohibiting him from extending additional credit to IAC; this directive was issued because IAC’s account with Aerospace was delinquent.  Despite this directive, Abiseid extended additional credit in the amount of $65,000 to IAC, and subsequently IAC filed for Chapter 11 bankruptcy thus causing Aerospace to suffer additional financial loss.  Aerospace accordingly filed an action seeking recovery from Abiseid for the loss.  

Abiseid, however, attempted to seek protection under Florida Statute section 607.0831 arguing that he received no benefit from his noncompliance with the directive and was accordingly protected by the statute.  The Third District Court of Appeal rejected this argument finding that Abiseid’s unilateral action was in direct conflict with the protected decision of the board of directors, and that Abiseid’s violation of the corporate decision was nothing more than a breach of that corporate decision.   

At the conclusion of its opinion, the Third District Court of Appeal succinctly noted:

If we accepted Abiseid’s argument we would be granting an individual director the authority to veto corporate policy. Corporate chaos would be the result, as each director could act on his own whim. Certainly section 607.0831(1)(a), (1)(b)(2) was not enacted in order to create situations wherein a director could individually repeal duly established corporate policy and escape liability for damages caused by his or her unilateral action.  

Aerospace Accessory Serv., Inc., 943 So. 2d at 867-68.