- GEN: SH steps in to vindicate a corporate claim.
- >> Corp must have been able to brough the suit.
- >> Typical cases: Breaches to duties of loyalty/care.
- KEY SAFEGUARD: Suit will dismiss suit IF invesitgation by disinterested directors reveals that suit ≠ in corp's best interest.
- >> Court engages in review of DD decision.
- SH REQS:
- (1) Stock ownership: at time claim arose -- or have fotten it by operation of law from someone who did. Must own stock throughout the litigation.
- >> If SH owns less than 5% of any class of stock, the corp an demand that the SH post security for costs (unless stock has FMV of $200K+).
- (2) Fairly/adequately represent SH interests -- more than ownership.
- (3) SH makes a written demand on directors that corp bring suit.
- >> Excused only where futile: -- SH must show that irreparable injury to corp would result if demand made.
- >>>> IE. directors would be defendants -- Almost always the case b/c breach of duty of loyalty.
- (4) Plead w/ particularity.
- (5) Corp must be joined as a defendant.
- (1) Corp gets money from the judgment.
- >> Settlements subject to court approval.
- (2) SH receives costs and atty fees, usually from the corp, but only if court finds the case conferred a substantial benefit on the corp.
BUT: If suit found to be commenced without reasonable cause
, a corp -- if successful -- may be reimbursed for its expenses.
CLAIM PRECLUSION: If one SH sues and case is decided on the merits, then another SH cannot later sue.