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Outline

Derivative action
- "two suits in one"
  - on behalf of corporation
  - corporation pays shareholder's fees
- conflicting interests
  - shareholder plaintiff
  - director/officer defendants
  - disinterested directors
  - disinterested shareholders
- judicial procedures
  - purposes
    - protect corporate interests
    - maintain judicial integrity
  - contemporaneous ownership
  - demand requirement
  - expense-shifting
  - disinterested dismissal
Direct shareholder action (class action)
distinguish from derivative suit
certification and settlement approval

Daily Thoughts

When someone asks you, "A penny for your thoughts,"and you put your two cents in, what happens to the other penny?

Why is the man who invests all your money called a broker?

Why do croutons come in airtight packages? It's just stale bread to begin with.

Why do we say something is out of whack? What is a "whack"?

Why is it that if someone tells you that there are 1 billion stars in the universe you will believe them, but if they tell you that a wall has wet paint you will have to touch it to be sure?

Problems

The board of Publix, Inc. approves a merger at $50. The board submits the merger for shareholder approval, but in the proxy materials misleads the shareholders by saying that the $50 price represents "fair value" according to an opinion by an investment banker. In fact, the investment banker opined that "$50 is at the low range of fairness." Shareholder Smalley sues the directors for breaching their fiduciary duties of "complete candor." Publix is incorporate in an MBCA jurisdiction.

Party A (Smalley) Argue that Smalley's suit should be treated as a direct action. What are the procedural implications?
Party B (board) Argue that Smalley's suit should be treated as a derivative action. What are the procedural implications?

Readings