Narrative Opinion Summary
The Indiana Supreme Court addressed a certified question from the U.S. District Court concerning the demand requirement for shareholders in derivative lawsuits under the Indiana Business Corporation Law (BCL), specifically examining the applicability of the futility exception. The case involves derivative actions initiated by the Alaska Electrical Pension Fund against Guidant Corporation's board of directors following the corporation's legal challenges related to defective medical devices. The board sought dismissal, arguing a failure to meet the demand requirement, while the plaintiffs claimed demand futility. Indiana law allows exceptions to the demand requirement if a majority of the board is implicated in wrongdoing. The court highlighted the role of disinterested committees authorized by Indiana law, which can conclusively determine the corporation's pursuit of claims unless their impartiality or good faith is contested. Although the court acknowledged a legislative shift towards a universal demand standard, it emphasized that Indiana retains the futility doctrine. The court underscored the validity of the irreparable injury exception, allowing immediate legal action to prevent harm. The decision reinforces the board's primary role in litigation decisions, ensuring that shareholder demands align with corporate governance interests.
Legal Issues Addressed
Demand Futility Exceptionsubscribe to see similar legal issues
Application: The court acknowledges an exception to the demand requirement if shareholders can specifically allege that a majority of the board is involved in wrongdoing or has a conflict of interest.
Reasoning: Historically, Indiana law has permitted exceptions to the demand requirement if shareholders can specifically allege that a majority of the board is involved in wrongdoing or has a conflict of interest.
Demand Requirement in Derivative Suitssubscribe to see similar legal issues
Application: The court clarifies the necessity of a written demand by shareholders before initiating a derivative lawsuit under the Indiana Business Corporation Law, emphasizing that the demand can be excused if it is deemed futile.
Reasoning: The BCL stipulates that complaints in derivative suits must be verified and detail any demands made to the board of directors, along with the outcomes of those demands or reasons for not making them.
Irreparable Injury Exceptionsubscribe to see similar legal issues
Application: The court confirms that the irreparable injury exception remains valid, allowing shareholders to bypass the demand requirement if waiting would cause harm to the corporation.
Reasoning: The universal demand standard, as outlined in the revised RMA, mandates that a shareholder must wait ninety days after making a demand before filing a lawsuit, unless there is a risk of 'irreparable injury' to the corporation.
Role of Disinterested Committeessubscribe to see similar legal issues
Application: The court recognizes the role of disinterested committees in determining whether to pursue claims, asserting that their decisions are generally conclusive unless a lack of disinterest or a failure to conduct a good faith investigation is demonstrated.
Reasoning: A board of directors can establish a committee of three or more disinterested individuals under Section 23-1-32-4 of the Business Corporation Law (BCL) to evaluate whether a corporation has a legal right to pursue a claim and if doing so is in the corporation's best interest.
Universal Demand Standardsubscribe to see similar legal issues
Application: The court discusses the trend towards a universal demand standard but notes that Indiana law has not fully adopted this approach, maintaining the doctrine of futility.
Reasoning: Despite these developments, the document suggests that the doctrine of futility remains embedded in Indiana corporate law, indicating that it has not been entirely superseded by statutory changes.