Tennessee
How Auerbach v. Bennett applies in Tennessee: state-specific rules, key cases, and bar exam notes for Corporations.
Tennessee recognizes the principles of Auerbach v. Bennett, which established the business judgment rule, allowing directors discretion in business decisions as long as they act in good faith and in the interest of the corporation. However, Tennessee courts also emphasize the necessity of business-like conduct and due diligence in decision-making.
In Tennessee, the business judgment rule permits directors to make decisions without judicial interference, provided those decisions are made in good faith, with the care of an ordinarily prudent person, and in a manner the directors reasonably believe to be in the best interest of the corporation.
The court upheld the business judgment rule, affirming that as long as directors acted in good faith and absent fraud, courts would not intervene in their business decisions.
This case underscored that directors must demonstrate a reasonable inquiry into relevant facts while exercising their discretion to maintain protection under the business judgment rule.
The decision confirmed that the burden lies on the party challenging a director's decision to prove that the business judgment was not made in good faith or was void of rationality.
Tennessee's approach to the business judgment rule is consistent with the federal standard, particularly the principles observed in cases like Auerbach v. Bennett. Both frameworks provide directors with significant leeway in making corporate decisions, emphasizing good faith and business prudence as key factors before court intervention.
Understanding the business judgment rule as articulated in Auerbach and its application in Tennessee is essential for the Tennessee bar exam, as corporate governance principles frequently appear in exam questions.