Applying The Business Judgment Rule To Director Pay Claims

April 5, 2018

What legal standard applies to an assessment of a corporate board’s refusal to pursue litigation in response to a shareholder’s “demand” to take “all necessary actions” to correct alleged misconduct by directors related to their compensation? In Solak v. Fundaro,[1] Commercial Division Justice Charles Ramos ruled that since the shareholder had asked the board to take “all necessary actions” in a letter that the court construed as a “demand” under Rule 23.1 of the Delaware Chancery Court Rules, the shareholder conceded that the board was independent and disinterested. Thus, according to the court, the shareholder action is subject to the business judgment rule and the shareholder must plead particularized facts showing gross negligence or bad faith to proceed with a derivative claim.

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