Corporations: Derivative Action (Which test applies? (Aronson Test…
Corporations: Derivative Action
How does it start?
Plaintiff shareholder sues the Board of Directors to compel the corporation to sue a third party (corporate director).
Usually, the suit is filed for an alleged breach of fiduciary duty.
Which test applies?
Applies when the Board approves a transaction (this is not the same as refusing to act).
Stone v. Ritter
When the Board fails to act.
When the Board made a decision, but a majority of the directors were replaced.
When the Board of a different corporation is being challenged, like in a merger.
Broz v. Cellular
When is demand futile?
There was a reasonable doubt that a majority of board members were "independent" and "disinterested."
In re Limited
Was a corporate director entitled to receive a "material" benefit that other shareholders were not?
A corporate director receives a large salary or bonus.
A corporate director is also a company officer.
Board members had divided loyalties.
A corporate director cannot make up her own mind.
She is beholden to a controlling director.
Receiving fees from the company or a subsidiary.
Being a party to an immaterial contract between the corporation and another company.
Receiving a donation.