## Facts

- Liberty Starters Corporation, a New York corporation, operated to manufacture automobile starters and pursue aviation-related production, but later failed and entered receivership.
- Earle B. Barnes, as receiver, sued Charles Lee Andrews, a former director, alleging negligent inattention to corporate affairs that contributed to losses and collapse.
- Andrews served as a director from October 1919 to June 1920; Liberty continued operating until about 1921, and remaining assets were later sold for a small return.
- During Andrews’s tenure, the board held two meetings; Andrews attended one and missed the other due to his mother’s death.
- Andrews primarily relied on informal, occasional conversations with the president (a personal friend) and did not seek detailed information about operations and finances.
- The receiver sought (1) general liability for the company’s collapse, (2) liability for alleged overpayments to Delano, and (3) liability for costs of printing stock-selling pamphlets and circulars.

## Issues

1. What level of attention and oversight does a corporate director owe, particularly when relying on officers for day-to-day management?
2. When a director fails to meet that standard, must the plaintiff prove that proper performance would have prevented specific losses and quantify the resulting damages?
3. Can a director be held personally liable for particular transactions or expenses absent proof that the director caused or could have prevented them?

## Decision

- The court found Andrews failed to adequately perform a director’s oversight duties by not keeping himself informed with sufficient detail.
- The court nevertheless entered a decree for Andrews because the receiver did not prove that Andrews’s inattention caused identifiable losses or establish the amount of any such losses.
- The court rejected imposing general liability for the enterprise’s collapse because the evidence did not show what different outcome would have followed from adequate director attention.
- The court also denied recovery for the alleged overpayments and stock-selling expenses due to insufficient proof of causal responsibility; the stock-selling printing costs were tied to an existing corporate contract Andrews did not create and could not reasonably prevent.

## Legal Principles

- Directors are not expected to manage daily operations individually; officers retain initiative and immediate direction, while directors act through board governance and counsel.
- A director has an individual duty of reasonable oversight, including keeping informed in meaningful detail and not relying indefinitely on vague assurances of prosperity.
- Breach of the duty of care does not itself establish liability; the plaintiff must prove causation by showing that proper performance would have avoided specific losses.
- The plaintiff bears the burden to prove both (1) a causal link between the breach and corporate harm and (2) a non-speculative measure of damages.
- A director is not liable for corporate expenses that the director neither authorized nor could have prevented, including performance of binding obligations that predated the director’s service, absent proof of causation.

## Conclusion

The court held that a director’s inattentive oversight may constitute a breach of duty, but personal liability requires proof that the breach caused specific, measurable corporate losses; without that showing, the receiver cannot recover, and judgment is for the director.


Barnes v. Andrews, 298 F. 614 (S.D.N.Y. 1924)