Amanda Weiner

Writing Assignment #7

The demand requirement is when a stockholder/shareholder makes a demand by requesting that directors to take corporate action on a claim that belongs to the corporation. Essentially, the shareholder is claiming that the directors o a corporation ha!e !iolated their iduciary duties by not taking a necessary, proper action and there ore wants to ile a deri!ati!e suit. The demand requirement is in place to deter ri!olous lawsuits by orcing the shareholder to e"haust all remedies prior to instituting the suit. #urthermore, it creates a orm o alternati!e dispute resolution by pro!iding corporate directors with opportunities to correct their alleged wrongdoings, help protect directors rom harassment by litigations on matters that are clearly within their discretion, and discourages $strike suits% commenced by shareholders or personal gain rather than or the bene it o the corporation. The goal is to protect directors, gi!en that shareholder deri!ati!e actions impinge on the &oard's managerial reedom. (n strict demand )urisdictions, like *elaware and +ew ,ork, a shareholder must irst make the request that the directors bring the suit. The shareholder must then show that the demand was either re)ected by the &oard -which is the usual scenario. or e"cused, which requires a )usti ication as to why the demand wasn't made -which alls under a utility e"ception.. A demand will be e"cused i making a demand is utile. The shareholder must allege particular acts, as opposed to conclusory statements, as to why the demand is e"cused and then shareholder may use the $tools at hand% to obtain/particulari/e those act. As stated in Grimes v. Donald -*elaware., the basis or claiming e"cusal would be when the ma)ority o the board has a material interest, are incapable o acting independently/domination or control, or the transaction is not a !alid e"ercise o business )udgment. +ew ,ork has a slightly di erent standard that is technically unctionally equi!alent to that in *elaware. +ew ,ork's standard, as stated in Marx v. Akers, requires that the complaint show with particularity that a ma)ority o directors are interested in the transaction, or the directors were not in ormed/!iolated A0(1A, or that they ailed to e"ercise their business )udgment/committed waste. ( the demand was originally re used, the court will !iew the suit under the protection o the business )udgment rule. ( the demand is e"cused under one o the utility e"ceptions, then the shareholder is granted the right to disco!ery. 2pecial litigation committees may it into this structure as well. When presented with the issue o when to bring a shareholder's deri!ati!e action, the &oard may decide to create a special litigation committee composed o disinterested directors to decide the issue. The &oard may legally delegate authority to this kind o committee when the &oard inds that it is tainted by the sel 3interest o a ma)ority o directors. The &oard is not abdicating because the decision to create a committee is re!ocable. A deri!ati!e action must be dismissed i this special committee o independent and disinterested directors conducted a proper re!iew, considered a !ariety o actors, and reached a good aith business )udgment that the action was not in the best interest o the corporation. (t is required that a committee show that its members are disinterests and used proper methodology, is independent, proceeded in good aith, and they reasonably in!estigated the claim.