Title 10 – Corporations and Associations

Chapter 29 – Members and Membership-nonprofit Corporations

Article 4 – Derivative Suits

• A. A derivative proceeding shall be dismissed by the court on motion by the corporation on any legal grounds, including if one of the groups specified in subsections B or F has determined in good faith after conducting a reasonable inquiry on which its conclusions are based that the maintenance of the derivative proceeding is not in the best interests of the corporation.
• B. Unless a panel is appointed pursuant to subsection F, the determination in subsection A shall be made by either:
• 1. A majority vote of independent directors present at a meeting of the board of directors if the independent directors constitute a quorum.
• 2. A majority vote of a committee consisting of two or more independent directors appointed by majority vote of independent directors present at a meeting of the board of directors, whether or not such independent directors constitute a quorum.
• C. None of the following shall by itself or collectively cause a director to be considered not independent for purposes of this section:
• 1. The nomination or election of the director by persons who are defendants in the derivative proceeding or against whom action is demanded.
• 2. The naming of the director as a defendant in the derivative proceeding or as a person against whom action is demanded.
• 3. The approval by the director of the act being challenged in the derivative proceeding or demand if the act resulted in no personal benefit to the director.
• D. If a derivative proceeding is commenced after a determination has been made that rejects a demand by the complainants, the complaint shall allege with particularity facts that establish either:
• 1. That a majority of the board of directors did not consist of independent directors at the time the determination was made.
• 2. That the requirements of subsection A have not been met.
• E. If a majority of the board of directors does not consist of independent directors at the time the determination is made, the corporation has the burden of proving that the requirements of subsection A have been met. If a majority of the board of directors consists of independent directors at the time the determination is made, the plaintiff has the burden of proving by clear and convincing evidence that the requirements of subsection A have not been met.
• F. The court may appoint a panel of one or more independent persons on motion by the corporation to determine whether the maintenance of the derivative proceeding is in the best interests of the corporation. In that case, the plaintiff has the burden of proving by clear and convincing evidence that the requirements of subsection A have not been met. A person appointed by the court is not liable for a determination made pursuant to this section.