Law School Outline- Derivative Action Flowchart

A. Derivative Action Flowchart More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net IS SUIT DIRECT OR DERIVATIVE? DIRECT S/H Suit Allowed DERIVATIVE (MCBA §7.42) (Delaware/NY) Did Board Find Suit NOT in Corp’s Best Interest? Yes No IS DEMAND FUTILE? DelawareTest (Aronson) Reasonable Doubt That: 1. Maj. Of Board is Independent; or NY Test (Marx) Π Shows That: 1. Maj. Of Board has a direct interest in the challenged trans; or is controlled by an interested party; or 2. Directors failed to reasonably inform themselves; or 3. Challenged transaction so egregious that it could not have been of sound business judgment. S/H Suit Allowed 2. BJR applies; or 3. Carelessness & Waste Was Decision Based on Good Faith or Reasonable Investigation? Burden on S/H Only if Majority of Board is Independent or Court Appointed. Yes No    Yes No Demand Excused; S/H Suit Allowed; Corp. May Use SLC’s to Get Court To Dismiss Demand NOT Excused Demand Made? Yes No S/H Suit Dismissed S/H Suit Allowed Demand Refused? Wrongful Refusal? (Apply BJR To Decision) Yes S/H Suit Dismissed or Stayed Until Demand Made No Yes No Board Takes Control of S/H Suit. S/H Suit Allowed S/H Suit Dismissed More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net DERIVATIVE ACTION HURDLE #2: DEMAND REQUIREMENTS Universal Demand Non-Universal Demand More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net