Director and Officer Liability

Litigation Attorneys with Successful Verdicts and Settlements in Houston Director and Officer Liability Cases

Businesses rely on their directors and officers to successfully lead them, so any claim of officer liability needs to be handled by a skilled lawyer. Directors and officers have a higher responsibility to protect their company and its shareholders’ interests than do other employees. But the law also protects these same executives, even imposing additional jurisdictional requirements for D&O claims. Whether an officer can be held legally liable for their poor or self-interested decisions requires careful analysis.

Our attorneys have defended and prosecuted claims against many high-profile corporate officers. For example,  Life Partners v. Pardo., Robert Burford and Brent Perry successfully defended the founder and former CEO of a public company, Life Partners, from breach of fiduciary duty, fraudulent transfer, and preference claims the company alleged cost it $750 million and compounded into the largest Ponzi scheme in Texas history.

An Officer’s Responsibility and the Business Judgment Rule

Directors and officers have the power to take a company to new heights or bring it crashing down. Because of this power, officers are required to put the interests of the company and its shareholders above their own. These officer responsibilities are called fiduciary duties. Broadly, an officer owes a company three fiduciary duties: the duties of obedience, loyalty, and due care.[1]

Sometimes a business decision made by an officer turns out to be detrimental to the company, but this does not necessarily mean the officer is in breach of their duty. Directors and officers are given a high level of protection when making corporate decisions: the Business Judgment Rule presumes that an officer’s decision is made on an informed basis, in good faith, and in the honest belief that the action taken was in the best interest of the company.

In order to determine whether or not an officer faces legal liability for a company decision, you will need an experienced director and officer liability lawyer to investigate the circumstances of the decision.

Shareholder Derivative Litigation

A company usually protects its own interests in the face of a misbehaving officer. But sometimes it is controlled or dominated by the officer or director accused of misdeeds. In these situations, a company’s shareholders may need to file a lawsuit in the name of the company to defend its rights and protect its assets. A shareholder claim filed for the company is called a “derivative” suit and has specific requirements that must be met before filing suit. The entire suit can be dismissed if these requirements are not satisfied. Burford Perry has extensive experience prosecuting and defending shareholder derivative litigation and can walk you through the process.

Common Director and Officer Liability Claims

Director and officer liability arises when employees, shareholders, or other officers believe an individual officer acting on behalf of the company acted without putting the company first. Some of the most common officer liability claims include:

• Self Dealing – Generally, an officer cannot take a corporate business opportunity for themselves or buy company assets at a discount. But, in certain circumstances, a director or officer is allowed to make decisions for their own benefit. Specific steps must be followed to avoid liability. When an officer’s actions benefit the officer to the company’s detriment, it may be a breach of the duty of loyalty. [3]An experienced lawyer can help the company or its shareholders protect the company.
• Ultra Vires claims – Sometimes an officer exceeds the authority they are given to make certain decisions. These “ultra vires” actions may be a breach of the duty of obedience.[2] An experienced attorney is needed to help shareholders protect a company’s rights and assets when the company refuses to curtail an officer’s out-of-bounds corporate actions and decisions.
• Sexual harassment – Allegations of sexual harassment can be harmful for a thriving company. Not only does this illegal behavior promote an unsafe work environment, it can also cost the company millions and tarnish its reputation. An officer who sexually harasses employees can be found personally responsible for the damage caused to the company. Robert and Brent have both defended and prosecuted major sexual harassment cases.
• Defamation – When an officer makes a false statement that harms the reputation of the company, shareholders can bring a defamation claim against the officer for the resulting damage to the company. Defamation can cause immediate harm to a company’s stock price, business relationships, and reputation.
• Wrongful termination – If an officer wrongfully terminates an employee, it could open the company up to costly wrongful termination litigation. In this case, an officer can be held responsible for any damages caused by the wrongful termination.
• Voluntary separation. Conversely, an officer must be particularly careful when leaving a company to preserve his rights and compensation. For example, in Francis D. John v. Key Energy Services, Inc., John (the longtime CEO) left Key Energy. Two years later, Key Energy informed him that his departure was with cause and sought to withhold John’s benefits, as well as recoup $10,000,000 from him. Robert Burford filed suit against Key Energy on John’s behalf and eventually achieved a favorable settlement. The details of the settlement are contained in Key Energy’s June 26, 2007 Form 8-K filing with the SEC.

Officer Liability Claims

Officer liability cases are rarely simple. The officer involved will usually claim he or she operated by the standards of the Business Judgment Rule. To prove the officer acted in his or her self-interest or outside of their given authority, and did not simply make a poor business decision, you will need the help of an experienced officer liability lawyer who can conduct a thorough investigation and analyze the circumstances of the case. For officers accused of acting for their own benefit, it’s important to immediately contact an attorney to protect your rights and give you the best defense.

Lawyers for Directory and Officer Liability Claims

At Burford Perry LLP, our lawyers have extensive experience both defending officers from liability claims and pursuing D&O claims for companies or shareholders. This gives us insight into how the other side will approach a claim and how to best pursue resolution. If you are dealing with a directory or officer liability claim or suspect an officer has acted in his or her own self-interest, call Burford Perry LLP today to schedule a confidential consultation to discuss your case.

[1] Gearhart Indus., Inc. v. Smith Intern., Inc., 741 F.2d 707, 719 (5th Cir. 1984).

[2] Gearhart, 741 F.2d at 719.

[3] Gearhart, 741 F.2d at 719.