Can you rely on information provided to you by your employee, attorney, or CPA? For example, imagine a reliable employee tells you that she completed a task—do you have a legal duty to verify she completed it or can you reasonably trust her statement?
Right to Rely on Information
The right to rely on information in a business often comes up when someone is trying to hold a manager liable for relying on false information provided by someone else.
Does the manager of a company have a duty to second-guess whether all the information provided to them is truthful and accurate? Or can a manager assume the information is reliable absent suspicious circumstances?
Minnesota statutes provide some protections for those managing a company. The law generally gives those managing a company the right to rely on information provided by subordinates, attorneys, CPAs, and some other individuals.
Limited Liability Company (LLC)
For example, the manager of an LLC “may rely in good faith on opinions, reports, statements, or other information provided by another person that the member reasonably believes is a competent and reliable source for the information.” This right is found in Minnesota Statutes section 322C.0409, subdivision 3:
Subject to the business judgment rule, the duty of care of a member of a member-managed limited liability company in the conduct and winding up of the company’s activities is to act with the care that a person in a like position would reasonably exercise under similar circumstances and in a manner the member reasonably believes to be in the best interests of the company. In discharging this duty, a member may rely in good faith on opinions, reports, statements, or other information provided by another person that the member reasonably believes is a competent and reliable source for the information.
Similarly, the director of a Minnesota corporation is generally “entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data” provided by officers, employees, attorneys, CPAs, and some others. This right is found in Minnesota Statutes section 302A.251, subdivision 2:
(a) A director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, in each case prepared or presented by:
(1) one or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented;
(2) counsel, public accountants, or other persons as to matters that the director reasonably believes are within the person’s professional or expert competence; or
(3) a committee of the board upon which the director does not serve, duly established in accordance with section 302A.241, as to matters within its designated authority, if the director reasonably believes the committee to merit confidence.
(b) Paragraph (a) does not apply to a director who has knowledge concerning the matter in question that makes the reliance otherwise permitted by paragraph (a) unwarranted.
In some ways, these laws make perfect sense. If a company manager had to verify the accuracy of all the information they received, it would take a lot of time to verify this information. Managers could not rely on the accounting reports, so they would have to review each accounting record to ensure the accuracy of a final report.
However, please note that there are exceptions to these general rules. These exceptions include when company leaders must certify the accuracy of information. As one example, the Sarbanes-Oxley Act of 2002 requires the CEO and CFO to provide a statement certifying the accuracy of some information.
Company operations depend on a reasonable degree of trust and good faith among the employees. Unless there is a reasonable basis to not trust, the law generally provides protections for company managers who trust the information provided to them.