Opinion ID: 852516
Heading Depth: 2
Heading Rank: 5

Heading: Reasonable Conduct as an Issue of Law or Fact

Text: Lean argues that summary judgment cannot be affirmed because reasonable care under section 19(d) is always a question of fact. We agree that summary judgment is rarely appropriate as to a director's reasonable care. Even where the director concededly took no action and made no inquiry, depending on who had reviewed and presented the transaction, passive reliance may be reasonable. Lean properly cites the statement from Arnold v. Dirrim, 398 N.E.2d 426, 435 (Ind.Ct. App.1979), that [r]easonable care is a question of fact which must be determined by taking into account all the circumstances. [9] But in Arnold, the Court of Appeals rejected the director's argument that he relied on the president of the corporation's representations and judgment and thus satisfied his burden of refuting liability. Id. The court thought that the director's claim miss[ed] the mark because it focuses not on his lack of knowledge about the facts but rather that he was unaware the law attached significance to those facts. Id. The court concluded that [c]ertainly if the legislature had intended to establish a good faith defense, it would have included such wording in the statute. Id. We agree that, as Robertson held, ignorance of the law is no defense under section 19(d). We also agree that Arnold is correct that reasonable care is ordinarily a fact issue. But in extreme cases conduct may be reasonable or unreasonable as a matter of law just as negligence may be established as a matter of law. C.f. Davison v. Williams, 251 Ind. 448, 456, 242 N.E.2d 101, 105 (1968). Arnold further explained that reasonable reliance on information purporting to be made on the authority of an expert may be relevant to the director's liability. 398 N.E.2d at 435. If Lean had been told by a respectable authority that this transaction complied with legal requirements, it would create a factual issue as to the reasonableness of his unquestioning acceptance. But the undisputed facts of this case are that Lean assumed this transaction complied with applicable law based on no assurance or documentation from anyone. A director who makes this assumption does not meet the standard required by the ISL that in the exercise of reasonable care he could not have known of the facts constituting the violation. Reasonable inquiry, or receipt of reasonable assurance, is one thing. But blind assumption that all is well leaves the investing public in the same position as if there were no directors of the corporation. The statute places liability on the directors and officers to get their attention. If they respond with inattention, they proceed at their own risk. Moreover, in this case, the facts that Lean did know would place a director on notice of the need for some inquiry. There was no identification of the attorneys or others on whom management placed reliance. Indeed, there was no reference to any outside attorney in the designated evidence. A basic understanding of the Abacus acquisition would reveal that GOLI had no operating history, was converting from gold mining to an internet service provider, and had issued shares and options at substantially different prices in transactions that were virtually simultaneous with the Abacus transaction. These rudimentary facts bear multiple indicia of a problematic investment. The Indiana Securities Law requires more of a director than a simple assumption that all is well.