8/13/2019 Writing Assignment 7

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Amanda Weiner Writing Assignment #7

The demand requirement is when a stockholder/shareholder makes a demand byrequesting 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 thereore wants to ile a deri!ati!esuit. 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 allegedwrongdoings, 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 beneit 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 )ustiication as to why the demand wasn't made -which alls under a utility e"ception. Ademand 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 thenshareholder may use the $tools at hand% to obtain/particularie 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 transactionis not a !alid e"ercise o business )udgment. +ew ork has a slightly dierent standard that is

technically unctionally equi!alent to that in *elaware. +ew ork's standard, as stated inMarx 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 inormed/!iolated A0(1A, or that theyailed to e"ercise their business )udgment/committed waste. ( the demand was originally

reused, the court will !iew the suit under the protection o the business )udgment rule. ( thedemand is e"cused under one o the utility e"ceptions, then the shareholder is granted the rightto 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 speciallitigation 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

sel3interest 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 oindependent 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 usedproper methodology, is independent, proceeded in good aith, and they reasonably in!estigated

the claim.