3.7.2.1 Derivative lawsuits

Documentgegevens:

Mr. W.J.L. Calkoen, datum 16-02-2012

Datum: 16-02-2012
Auteur: Mr. W.J.L. Calkoen
JCDI: JCDI:ADS598428:1
Vakgebied(en): Ondernemingsrecht (V)

If shareholders wish to hold directors liable for violations of duties to the corporation, they can take the following action to have the corporation sue the director or obtain leave to sue the directors themselves. Plaintiffs must either address a demand to the company's board for the company to pursue the suit against its own directors or persuade the court that making such a demand would be futile. To succeed in showing futility, the plaintiff must allege specific facts that "create a reason to doubt that (1) the directors are disinterested or independent or (2) the challenged transaction was otherwise the product of a valid exercise of business judgment".1 These defaults refer to the board as a whole, which means that a majority of the board or the relevant committee must have been compromised in one of these respects or must have been dominated by a powerful director who has raised doubt about his loyal independence or his good faith care.

Even if the plaintiff succeeds at the demand stage, the company may, at any point in the course of the case, establish a special litigation committee comprised of independent directors to consider whether the company should move to dismiss the case. Grounds for moving to dismiss include a determination by the committee that the case is not meritorious or, even if it is meritorious, that "ethical, commercial, promotional, public relations, employee relations, fiscal as well as legal"2 factors support dismissal. There is no guarantee that a special litigation committee will conclude that the case should be dismissed, especially if there has been a change in the board composition as often occurs in the wake of serious fraud. If, however, a special litigation committee does recommend dismissal, a court will subject the committee's determination to a moderate level of scrutiny provided it finds that the committee was independent and that it followed a careful deliberative process in reaching its resolution.3 If the court finds that this was not the case, scrutiny will be more severe again, no second guessing.

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Walt Disney Co. Derivative Litigation, 825 A.2d 275, 285 (Del. Ch. 2003) (quoting Aronson, 473 A.2d at 814).

Zapata Corp. v. Maldonado, 430 A.2d 779, 788 (Del. 1981).

Bernard S. Black, Brian R. Cheffin and Michael Klausner, 'Outside Director Liability', 58 Stanford Law Review 1055 (2006), p. 1092 ('Bleck, Cheffms and Klausner (2006/A)'). In the Oracle case described above, the court held that the committee was not independent because of all the Stanford connections where the CEO donated $100 million to Stanford and four of the directors were Stanford professors.