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All Jurisprudence based

0 tracked cards Commercial and Taxation Laws

NovaShield, Inc. has five directors. Directors V and W together control 62% of NovaShield's outstanding shares and also own consulting firms that contract with NovaShield on terms that personally benefit V and W and cause losses to NovaShield. The board refuses to take any action against V and W. A minority stockholder, Kai, owning 9% of NovaShield's shares, files a stockholder derivative suit on NovaShield’s behalf to recover the losses. Kai did not demand action on the board prior to filing. (a) Identify the controlling doctrine and who has standing to sue in this scenario. (b) Should Kai’s suit be allowed without prior demand, or is demand futility present? (c) If the derivative action proceeds and NovaShield prevails, what relief may be granted and to whom would it accrue?

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Dominant-control doctrine: a private right to derivative action exists only if the stockholder has a personal stake distinct from the corporation; Standing: Kai can sue; Demand futility: present; Relief: injunctive relief against the related-party contracts. Dominant-control doctrine: corporate opportunity doctrine; Standing: the corporation is the proper plaintiff; Demand futility: not directly about the derivative action; Relief: profits disgorged to the corporation. Dominant-control doctrine: the dominant-control scenario where the controlling directors are also the beneficiaries of the wrongdoing renders demand futile; Standing: Kai, as NovaShield’s stockholder, has standing to file a derivative suit on the company’s behalf; Demand futility: present since the controlling directors would not pursue action against themselves; Relief: if the action succeeds, NovaShield may recover the losses and the recovery accrues to the corporation. Dominant-control doctrine: a formal Special Litigation Committee (SLC) process decides whether a derivative suit should be pursued; Standing: Kai may sue derivatively if the SLC approves; Demand futility: present when an SLC is required; Relief: the court adopts the SLC’s recommendation.

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