Bus Assn ? Regarding Demand

(Study Tips, Dealing With Stress, Maintaining a Social Life, Financial Aid, Internships, Bar Exam, Careers in Law . . . )
User avatar
traehekat
Posts: 3195
Joined: Thu Apr 30, 2009 4:00 pm

Bus Assn ? Regarding Demand

Postby traehekat » Wed Dec 07, 2011 1:43 pm

Ugh, can't believe I'm actually studying...

Can a shareholder make demand that a corporation resolve a dispute and then, if demand fails, file a derivative suit? Or does the shareholder have to pick either making demand and living with it or filing derivative suit and pleading why demand is excused? Basically, are demand and excuse mutually exclusive or can you do both?

EDIT: Okay I think I know the answer (at least under Grimes) - apparently you cannot make demand and then claim demand was excused. But you CAN claim that demand was wrongfully refused, right? THEN what can you do?

EDIT: Apparently the board's decision is subject to business judgment rule, which another way of saying sry bro not happening. Note to self: consider reading a few pages in e&e before asking questions with obvious answers on TLS.

truevines
Posts: 198
Joined: Fri Jun 20, 2008 6:16 pm

Re: Bus Assn ? Regarding Demand

Postby truevines » Wed Dec 07, 2011 2:22 pm

traehekat wrote:Ugh, can't believe I'm actually studying...

Can a shareholder make demand that a corporation resolve a dispute and then, if demand fails, file a derivative suit? Or does the shareholder have to pick either making demand and living with it or filing derivative suit and pleading why demand is excused? Basically, are demand and excuse mutually exclusive or can you do both?

EDIT: Okay I think I know the answer (at least under Grimes) - apparently you cannot make demand and then claim demand was excused. But you CAN claim that demand was wrongfully refused, right? THEN what can you do?

EDIT: Apparently the board's decision is subject to business judgment rule, which another way of saying sry bro not happening. Note to self: consider reading a few pages in e&e before asking questions with obvious answers on TLS.


1) Yes. Making a demand and the futility claim are mutually exclusive

2) When a SH makes a demand and the board refuses to pursue the litigation, the SH can resort to the _Rales_ test, arguing that the board is not impartial in refusing the SH's demand (wrongful refusal)

User avatar
traehekat
Posts: 3195
Joined: Thu Apr 30, 2009 4:00 pm

Re: Bus Assn ? Regarding Demand

Postby traehekat » Wed Dec 07, 2011 2:39 pm

truevines wrote:
traehekat wrote:Ugh, can't believe I'm actually studying...

Can a shareholder make demand that a corporation resolve a dispute and then, if demand fails, file a derivative suit? Or does the shareholder have to pick either making demand and living with it or filing derivative suit and pleading why demand is excused? Basically, are demand and excuse mutually exclusive or can you do both?

EDIT: Okay I think I know the answer (at least under Grimes) - apparently you cannot make demand and then claim demand was excused. But you CAN claim that demand was wrongfully refused, right? THEN what can you do?

EDIT: Apparently the board's decision is subject to business judgment rule, which another way of saying sry bro not happening. Note to self: consider reading a few pages in e&e before asking questions with obvious answers on TLS.


1) Yes. Making a demand and the futility claim are mutually exclusive

2) When a SH makes a demand and the board refuses to pursue the litigation, the SH can resort to the _Rales_ test, arguing that the board is not impartial in refusing the SH's demand (wrongful refusal)


thanks. wth is the rales test? i dont think we even read that case. is it basically that the decision not to pursue litigation is subject to business judgment rule?

User avatar
monkey85
Posts: 394
Joined: Fri Feb 20, 2009 7:07 pm

Re: Bus Assn ? Regarding Demand

Postby monkey85 » Wed Dec 07, 2011 2:50 pm

traehekat wrote:thanks. wth is the rales test? i dont think we even read that case. is it basically that the decision not to pursue litigation is subject to business judgment rule?


In making a demand futility claim (Delaware):
Ask: Is the board that would be receiving the demand claim the same as the board that approved the transaction at issue? (In short: is Board NOW = Board THEN)

If YES: apply Aronson Test: P must prove (1) reasonable doubt that majority of the board THEN was disinterested and independent or (2) board decision not a result of valid business judgment (i.e., gross negligence).

If NO - that is, more than half of the Board NOW is different: apply Rales Test: P must prove reasonable doubt that majority of the board NOW is disinterested and independent (similar to Aronson, but instead analyze disinterest and independence of current board, rather than previous board).

In both, you are just trying to show that the analyzing board does NOT have the ability to objectively decide whether or not to purse derivative litigation. HTH.

truevines
Posts: 198
Joined: Fri Jun 20, 2008 6:16 pm

Re: Bus Assn ? Regarding Demand

Postby truevines » Wed Dec 07, 2011 2:55 pm

traehekat wrote:
truevines wrote:
traehekat wrote:Ugh, can't believe I'm actually studying...

Can a shareholder make demand that a corporation resolve a dispute and then, if demand fails, file a derivative suit? Or does the shareholder have to pick either making demand and living with it or filing derivative suit and pleading why demand is excused? Basically, are demand and excuse mutually exclusive or can you do both?

EDIT: Okay I think I know the answer (at least under Grimes) - apparently you cannot make demand and then claim demand was excused. But you CAN claim that demand was wrongfully refused, right? THEN what can you do?

EDIT: Apparently the board's decision is subject to business judgment rule, which another way of saying sry bro not happening. Note to self: consider reading a few pages in e&e before asking questions with obvious answers on TLS.


1) Yes. Making a demand and the futility claim are mutually exclusive

2) When a SH makes a demand and the board refuses to pursue the litigation, the SH can resort to the _Rales_ test, arguing that the board is not impartial in refusing the SH's demand (wrongful refusal)


thanks. wth is the rales test? i dont think we even read that case. is it basically that the decision not to pursue litigation is subject to business judgment rule?


1) When the SH makes a demand, and the board refuses to pursue the action, the board's decision is protected by the BJR presumption.

2) In this case, the SH can sue and argue
i) to defeat the BJR (very hard to do, impractical); or
ii) that the board is not impartial in refusing his demand (wrongful refusal). The court will use the _Rales_ test (whether the board was disinterested and independent in making the decision).

_Rales v. Blasband_, 634 A.2d 927 (Del. 1993)

Note- In determining whether the demand is excused, there are two tests: (i) the _Aronson_ test and (ii) the _Rales_ test.

The _Rales_ test also applies to the issue of wrongful refusal.

* * *
Gonna kick the "bizass" this afternoon. A great opportunity for me to refresh my memory.




Return to “Forum for Law School Students”

Who is online

Users browsing this forum: deadthrone7, LawHammer, m052310, Stubbazubba and 11 guests