Castetter

In this appeal, we must decide whether, under the California business judgment rule, directors of a federally-insured national bank may be held individually liable for losses sustained by the bank under a theory of simple negligence. We conclude that, under the circumstances of this case, the California business judgment rule insulates the directors from liability, and affirm the district court.

I

This case arises from the failure of the Balboa National Bank (“the bank”), a federally-insured national bank located in National City, California. Edward Peterson, a banker with twenty-six years of experience, including a tenure as a senior banking examiner for the state of California, obtained a federal charter for the bank and opened it in February 1983. Peterson was President, Chief Executive Officer (“CEO”), and the only inside member of the board of directors. Peterson solicited individuals to serve as outside directors on the bank’s board, including defendants Jon Chester, Arthur Engel, Anthony Pierange-lo, and Jon Stockholm. 1 Although some of the outside directors had served on boards of directors in the past, none had any significant banking experience and all were engaged in…