§ 7-1.2-711 - Actions by shareholders.
SECTION 7-1.2-711
§ 7-1.2-711 Actions by shareholders.– (a) Subchapter Definitions. In this subchapter:
(1) "Derivative proceeding" means a civil suit in the rightof a domestic corporation or, to the extent provided in subsection (h) of thissection, in the right of a foreign corporation.
(2) "Shareholder" includes a beneficial owner whose sharesare held in a voting trust or held by a nominee on the beneficial owner'sbehalf.
(b) Standing. A shareholder may not commence ormaintain a derivative proceeding unless the shareholder:
(i) Was a shareholder of the corporation at the time of theact or omission complained of or became a shareholder through transfer byoperation of law from one who was a shareholder at that time; and
(ii) Fairly and adequately represents the interests of thecorporation in enforcing the right of the corporation.
(c) Demand. No shareholder may commence a derivativeproceeding until:
(1) A written demand had been made upon the corporation totake suitable action; and
(2) Ninety (90) days have expired from the date the demandwas made unless the shareholder has earlier been notified that the demand hasbeen rejected by the corporation or unless irreparable injury to thecorporation would result by waiting for the expiration of the ninety (90) dayperiod.
(d) Stay of proceedings. If the corporation commencesan inquiry into the allegations made in the demand or complaint, the court maystay any derivative proceeding for such period as the court deems appropriate.
(1) On motion by the corporation, the court shall dismiss aderivative proceeding if one of the groups specified in paragraphs (ii) or (vi)has determined in good faith after conducting a reasonable inquiry upon whichits conclusions are based that the maintenance of the derivate proceedings isnot in the best interests of the corporation.
(2) Unless a panel is appointed pursuant to paragraph (vi),the determination in paragraph (i) must be made by:
(i) A majority vote of independent directors present at ameeting of the board of directors if the independent directors constitute aquorum; or
(ii) A majority vote of a committee consisting of two (2) ormore independent directors appointed by majority vote of independent directorspresent at a meeting of the board of directors, whether or not such independentdirectors constituted a quorum.
(3) None of the following by itself causes a director to beconsidered not independent for purposes of this section:
(i) The nomination or election of the directors or personswho are defendants in the derivative proceedings or against whom action isdemanded;
(ii) The naming of the director as a defendant in thederivative proceeding or as a person against whom action is demanded; or
(iii) The approval by the director of the act beingchallenged in the derivative proceeding or demand if the act resulted in nopersonal benefit to the director.
(4) If a derivative proceeding is commenced after adetermination has been made rejecting a demand by a shareholder, the complaintmust allege with particularity facts establishing either (A) that a majority ofthe board of directors did not consist of independent directors at the time thedetermination was made, or (B) that the requirements of subsection (a) of thissection have not been met.
(5) If a majority of the board of directors does not consistof independent directors at the time the determination is made, the corporationhas the burden of proving that the requirements of paragraph (i) have been met.If a majority of the board of directors consists of independent directors atthe time the determination is made, the plaintiff has the burden of provingthat the requirements of paragraph (i) have not been met.
(6) The court may appoint a panel of one or more independentpersons upon motion by the corporation to make a determination whether themaintenance of the derivative proceeding is in the best interests of thecorporation. In such case, the plaintiff has the burden of proving that therequirements of paragraph (i) have not been met.
(f) Discontinuance or settlement. A derivativeproceeding may not be discontinued or settled without the court's approval. Ifthe court determines that a proposed discontinuance or settlement willsubstantially affect the interests of the corporation's shareholders or a classof shareholders, the court shall direct that notice be given to theshareholders affected.
(g) Payment of expenses. On termination of thederivative proceeding the court may:
(1) Order the corporation to pay the plaintiff's reasonableexpenses (including counsel fees) incurred in the proceeding if it finds thatthe proceeding has resulted in a substantial benefit to the corporation;
(2) Order the plaintiff to pay any defendant's reasonableexpenses (including counsel fees) incurred in defending the proceeding if itfinds that the proceeding was commenced or maintained without reasonable causeor for an improper purpose; or
(3) Order a party to pay an opposing party's reasonableexpenses (including counsel fees) incurred because of the filing of a pleading,motion or other paper, if it finds that the pleading, motion or other paper wasnot well grounded in fact, after reasonable inquiry, or warranted by existinglaw or a good faith argument for the extension, modification or reversal ofexisting law and was interposed for an improper purpose, such as to harass orcause unnecessary delay or needless increase in the cost of litigation.
(h) Applicability to foreign corporations. In anyderivative proceeding in the right of a foreign corporation, the matterscovered by this subchapter are governed by the laws of the jurisdiction ofincorporation of the foreign corporation except for subsections (d), (f), and(g) of this section.