## Facts

- LaFontaine Grain Co-op operated a rural grain elevator; roughly 90% of its business involved buying and selling grain.
- The Co-op’s directors were Paul H. Brane, Kenneth Richison, Ralph Dawes, and John Thompson; day-to-day grain buying and selling was handled by manager Eldon Richison.
- The directors held monthly meetings reviewing general and financial reports, but rarely sought additional information and made no specific inquiry into losses sustained in 1980.
- Co-op profits had declined from 1977, and after a substantial 1979 loss, the Co-op’s CPA recommended hedging the grain position to prevent further losses.
- The directors authorized hedging, but the Co-op executed only minimal hedging contracts (about $20,050) compared to approximately $7.3 million in grain sales.
- Evidence indicated the Co-op sustained a 1980 gross loss of about $424,038, and expert testimony attributed the loss primarily to failure to hedge adequately.
- Shareholders brought a derivative-type action alleging the directors breached fiduciary duties by hiring a manager inexperienced in hedging and failing to supervise and inform themselves regarding hedging.
- After a bench trial, the court found the directors’ inattention to hedging and supervision caused the loss and entered judgment for $424,038.89 plus prejudgment interest.

## Issues

1. Whether the directors breached fiduciary duties by failing to learn basic hedging principles and failing to supervise a manager whose role required competent hedging oversight.
2. Whether the trial court applied the correct statutory standard of care and properly denied business-judgment protection where the directors’ conduct was allegedly uninformed.
3. Whether the trial court erred in admitting summary financial exhibits supporting loss and causation.
4. Whether the finding of causation and the damages award were clearly erroneous.
5. Whether the directors were entitled to a $150,000 setoff based on a separate settlement obtained by the Co-op.
6. Whether prejudgment interest was proper.

## Decision

- The Court of Appeals affirmed the judgment against the directors.
- It held the trial court applied the correct statutory duty of care (good faith, best interests of the corporation, and ordinarily prudent care under similar circumstances).
- It concluded the business judgment rule did not protect the directors because their conduct reflected uninformed inattention rather than informed decision-making.
- It found no error in admitting the challenged financial exhibits, which were grounded in business records and permissible summaries.
- It upheld causation and damages as supported by expert testimony and financial evidence tying losses to inadequate hedging.
- It rejected the claimed $150,000 setoff because the directors did not prove the settlement compensated the same loss.
- It upheld prejudgment interest because the damages were ascertainable through straightforward calculation from the records.

## Legal Principles

- Corporate directors must act in good faith, in the corporation’s best interests, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.
- In a business where a technical risk-management practice is central (e.g., hedging in grain trading), directors must either understand the basics or take reasonable steps to obtain and use competent information to oversee management.
- The business judgment rule protects informed, good-faith business decisions; it does not shield nonfeasance or gross inattention where directors fail to inform themselves or supervise despite clear warning signs.
- Summary financial exhibits may be admitted when based on underlying business records kept in the ordinary course and available for examination, subject to evidentiary rules governing summaries and hearsay exceptions.
- A defendant seeking a damages setoff bears the burden to prove the settlement compensated the same injury or loss.
- Prejudgment interest is available when damages are readily ascertainable by simple computation, even if liability is disputed.

## Conclusion

The court held the directors personally liable for the Co-op’s hedging-related losses because they failed to inform themselves about a core business risk and failed to supervise management, and it declined to apply business-judgment protection where the directors’ conduct was uninformed inattention.


Brane v. Roth, 590 N.E.2d 587 (Ind. Ct. App. 1992)