Ronald S. Lauder founded RSL, Ltd. A multinational telecommunications corporation that provided voice, mobile, and data/internet services. RSL Pic was a subsidiary of RSL Ltd. The subsidiary began issuing $1.4 billion of bonds. A few years later, in July, Lauder provided RSL Pic with a $100 million line of credit. The company's board did not hold a meeting to approve the line of credit, but in August drew down $25 million from the loan. The following March, the company's board held their first meeting in a year. Five days later, RSL, Pic filed for bankruptcy. The issue before the court is whether the members of the board of directors of RSL Pic breached their duty of care to the company when they failed to hold a meeting for a year at a time when the company was in such a precarious financial position. Issue: Did the directors of RSL Pic violate their duty of care to the corporation? Holding: Yes, the board violated its duty of due care. According to the court, under New York law, a director shall perform his duties as director, in good faith and with that degree of care that an ordinarily prudent person in a like position would use under similar circumstances. This duty requires that a director's decision be made on the basis of reasonable diligence in gathering and considering material information. When faced with allegations of misconduct, a director may raise the irrational, as long as the process employed was either rational or employed in a good faith effort to advance the corporation. A director must show an exercise of judgment, not simply the existence of a business decision. Thus, where the director's methodologies and procedures are so halfhearted or restricted in scope as to constitute a pretext or a sham, their acts are not protected by the business judgment rule. RSL Pic did not hold board meetings on behalf of RSL Pic during the time period relevant here. Despite this, RSL Pic still operated and took actions such as drawing down $25 million from the loan, apparently at the direction of RSL Ltd. However, no independent board meeting or discussions regarding the propriety of this and other business decisions were held on behalf of RSL Pic. RSL Pic did not hold board meetings on behalf of RSL Pic during the time period relevant here. Despite this, R of RSL Pic during the time period relevant here. Despite this, RSL Pic still operated and took actions such as drawing down $25 million from the loan, apparently at the direction of RSL Ltd. However, no independent board meeting or discussions regarding the propriety of this and other business decisions were held on behalf of RSL Pic. The law does not tolerate inaction of this sort. RSL Pic allegedly failed to consider any information regarding the company's financial health and allegedly failed to make a business judgment as a board regarding any financial decisions on behalf of RSL Pic. RSL Pic argues that closely held corporation with directors who are frequently in contact with one another do not have to abide by such formalities as board meetings when making business decisions. However, RSL Pic is not a small company: it has accrued $1.4 billion in debt. Although some of RSL Pic's board members had some contact, there were no behind the scenes meetings where the business of RSL Pic was discussed. Lastly, RSL Pic argues that its board members were fully informed about the financial situation of the company because some RSL Pic board members were also RSL Ltd board members, and thus they exercised their judgment on behalf of RSL Ltd, the parent of RSL Pic. However, individuals who act in a dual capacity as directors of parent and subsidiary corporation owe the same duty of good management to both corporations Question: The board members of RSL Pic and RSL Ltd overlapped. RSL Pic claims that because of this overlap, both boards were aware of what was going on with RSL Pic. Shouldn't that make a difference when determining whether the board of RSL Pic was making an informed decision? Ronald S. Lauder founded RSL, Ltd. A multinational telecommunications corporation that provided voice, mobile, and data/internet services. RSL Pic was a subsidiary of RSL Ltd. The subsidiary began issuing $1.4 billion of bonds. A few years later, in July, Lauder provided RSL Pic with a $100 million line of credit. The company's board did not hold a meeting to approve the line of credit, but in August drew down $25 million from the loan. The following March, the company's board held their first meeting in a year. Five days later, RSL, Pic filed for bankruptcy. The issue before the court is whether the members of the board of directors of RSL Pic breached their duty of care to the company when they failed to hold a meeting for a year at a time when the company was in such a precarious financial position. Issue: Did the directors of RSL Pic violate their duty of care to the corporation? Holding: Yes, the board violated its duty of due care. According to the court, under New York law, a director shall perform his duties as director, in good faith and with that degree of care that an ordinarily prudent person in a like position would use under similar circumstances. This duty requires that a director's decision be made on the basis of reasonable diligence in gathering and considering material information. When faced with allegations of misconduct, a director may raise the irrational, as long as the process employed was either rational or employed in a good faith effort to advance the corporation. A director must show an exercise of judgment, not simply the existence of a business decision. Thus, where the director's methodologies and procedures are so halfhearted or restricted in scope as to constitute a pretext or a sham, their acts are not protected by the business judgment rule. RSL Pic did not hold board meetings on behalf of RSL Pic during the time period relevant here. Despite this, RSL Pic still operated and took actions such as drawing down $25 million from the loan, apparently at the direction of RSL Ltd. However, no independent board meeting or discussions regarding the propriety of this and other business decisions were held on behalf of RSL Pic. RSL Pic did not hold board meetings on behalf of RSL Pic during the time period relevant here. Despite this, R of RSL Pic during the time period relevant here. Despite this, RSL Pic still operated and took actions such as drawing down $25 million from the loan, apparently at the direction of RSL Ltd. However, no independent board meeting or discussions regarding the propriety of this and other business decisions were held on behalf of RSL Pic. The law does not tolerate inaction of this sort. RSL Pic allegedly failed to consider any information regarding the company's financial health and allegedly failed to make a business judgment as a board regarding any financial decisions on behalf of RSL Pic. RSL Pic argues that closely held corporation with directors who are frequently in contact with one another do not have to abide by such formalities as board meetings when making business decisions. However, RSL Pic is not a small company: it has accrued $1.4 billion in debt. Although some of RSL Pic's board members had some contact, there were no behind the scenes meetings where the business of RSL Pic was discussed. Lastly, RSL Pic argues that its board members were fully informed about the financial situation of the company because some RSL Pic board members were also RSL Ltd board members, and thus they exercised their judgment on behalf of RSL Ltd, the parent of RSL Pic. However, individuals who act in a dual capacity as directors of parent and subsidiary corporation owe the same duty of good management to both corporations Question: The board members of RSL Pic and RSL Ltd overlapped. RSL Pic claims that because of this overlap, both boards were aware of what was going on with RSL Pic. Shouldn't that make a difference when determining whether the board of RSL Pic was making an informed decision