Levine v. Smith

Shareholders brought a derivative suit against the board of directors challenging the repurchase from the corporation's largest shareholder - Ross Perot. The issue concerned what standard the court should apply when a demand for a suit has been refused.

A shareholder plaintiff, by making demand upon a board before filing suit, "tacitly concedes the independence of a majority of the board to respond." Therefore, when a board refuses a demand, the only issues to be examined are the good faith and reasonableness of its investigation. Thus, the court was only required to apply the business judgment rule to the Board's refusal of Levine's demand.

Fiduciary Duties & Shareholder Litigation | Shareholder Suits for Breach of Fiduciary Duties | Authority to Terminate