Werbowsky v. Collomb (2001)

The futility exception to Maryland’s demand requirement is “very limited.” Werbowsky v. Collomb, 362 Md. 581 , 766 A.2d 123, 144 (2001).

A derivative action is “an extraordinary equitable device to enable shareholders to enforce a corporate right that the corporation failed to assert on its own behalf.” Werbowsky v. Collomb, 362 Md. 581 , 766 A.2d 123, 133 (2001).

Under Maryland law, a plaintiff alleging demand futility must plead and prove that “a majority of the directors are so personally and directly conflicted or committed to the decision in dispute that they cannot reasonably be expected to respond to a demand in good faith and within the ambit of the business judgment rule.” Werbow-sky v. Collomb, 362 Md. 581 , 766 A.2d 123, 144 (2001); 2 see Waller v. Waller, 187 Md. 185 , 49 A.2d 449, 453 (1946).

In Werbowsky , the plaintiffs had alleged that “the directors ... received substantial compensation as board members and ... had an incentive to appease [the majority shareholder and beneficiary of the challenged transaction] in order to maintain their position on the board.” Id. at 129.

In Werbowsky , the plaintiffs had alleged that "the directors ... received substantial compensation as board members and ... had an incentive to appease [the majority shareholder and beneficiary of the challenged transaction] in order to maintain their position on the board." Id. at 129.

See, e.g., Werbowsky v. Collomb, 362 Md. 581, 600 , 766 A.2d 123, 133 (2001) (“The fact that the action is on behalf of the corporation, rather than the shareholder, has significant implications, not the least of which is the extent to which the corporation can control the litigation after it is filed.”); see also Shenker, 411 Md. at 344 , 983 A.2d at 424 (“In a derivative action, any recovery belongs to the corporation, not the plaintiff shareholder.”); 12B William Meade Fl…

The court observed that the demand requirement and the futility exception had a long history in Maryland case law, but that the modern trend “has been to enforce more strictly the requirement of pre-suit demand and at least to circumscribe, if not effectively eliminate, the futility exception.” Id. at 137.

Under a “very limited exception” to this rule, a shareholder may be excused from this requirement if the shareholder can “clearly demonstrate, in a very particular manner,” that “a majority of the directors are so personally and directly conflicted or committed to the decision in dispute that they cannot reasonably be expected to respond to a demand in good faith and within the ambit of the business judgment rule.” Werbowsky v. Collomb, 362 Md. 581, 620 (2001).

Under Maryland law, derivative plaintiffs must " make a demand for remedial action on the corporation prior to filing suit ... [in order to] proceed with their lawsuit," as "the requirement of a demand, unless lawfully excused, remains fixed as both a substantive and pleading prerequisite." Werbowsky , 766 A.2d at 126, 134 (emphasis added). 4 "[I]n most cases, a pre-suit demand on the directors is not an onerous requirement.... [I]t gives the directors-even interested, non-i…

Id. at 143.

To begin with, the mere fact that directors are compensated does not excuse the demand requirement, see Werbowsky, 362 Md. at 618, 622 , 766 A.2d 123 (holding that the allegation that directors “are conflicted because of the fees they make as [company] directors, and their presumed desire to retain their directorships” does not show they were “conflicted or controlled ... to the point that a demand upon them would have been futile”).

See, e.g., Werbowsky, 362 Md. 581, 620 (2001) (“[T]here exists a limited futility exception to requirement of demand for remedial action prior to shareholder’s derivative action”).

The court noted that in most instances, presuit demand “is not an onerous requirement” and “gives the directors — even interested, non-independent directors — an opportunity to consider, or reconsider, the issue in dispute.” Id. at 144.

CA § 2-401; Werbowsky v. Collomb, 362 Md. 581, 598-99 (2001).

CA § 2-401; Werbowsky v. Collomb, 362 Md. 581, 598-99 (2001).

Werbowsky v. Collomb, 362 Md. 581, 599 (2001).

Under Maryland law, before proceeding with a derivative action, “a shareholder must first make a good faith effort to have the corporation act directly and explain to the court why such an effort was not made or did not succeed.” Werbowsky v. Collomb, 362 Md. 581 , 766 A.2d 123, 133 (Md.2001).

Although this concern is less relevant on the issue of the alleged breach of the implied covenant of good faith and fair dealing, which underlies the breach of contract claim relating to Charter, any application of the business judgment rule to support dismissal of that aspect of Sethi’s breach of contract claim fails because “[t]he protection of the business judgment rule ‘can be claimed only by disinterested directors whose conduct otherwise meets the tests of business jud…

Plaintiff failed to allege sufficient facts to establish that a pre-suit demand on the board of the nominal defendant (Sequoia) to prosecute the action would have been futile under applicable Maryland law ( see Werbowsky v Collomb , 362 Md 581, 600, 620, 766 A2d 123, 133, 144 [Md 2001]; see also Simon v Becherer , 7 AD3d 66, 72 [1st Dept 2004]; Hart v General Motors Corp. , 129 AD2d 179, 182-183 [1st Dept 1987], lv denied 70 NY2d 608 [1987]).

Werbowsky v. Collomb, 362 Md. 581 , 766 A.2d 123, 133 (2001) (“[Directors are required to perform their duties in good faith, in a manner they reasonably believe to be in the best interest of the corporation, and with the care that an ordinarily prudent person in a like position would use under similar circumstances.

Werbowsky v. Collomb, 766 A2d 123, 144 (Md. 2001).

Alaska Civil Rule 23.1(d) is identical. [20] E.g., Aronson v. Lewis, 473 A.2d 805, 809 (Del.1984) (acknowledging that demand requirement "is a rule of substantive right designed to give a corporation the opportunity to rectify the alleged wrong without litigation, and to control any litigation which does arise") (citation omitted), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244, 255 (Del.2000); Werbowsky v. Collomb, 362 Md. 581 , 766 A.2d 123, 144 (2001) (discus…

Ch. 2013).7 The business judgment rule reflects the presumption that directors of a corporation act “on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.” Werbowsky v. Collomb, 362 Md. 581, 608-09 (2001); see also Wittman v. Crooke, 120 Md.

Under Maryland law, demand may be excused where the board lacks independence, meaning “a majority of the directors are so personally and directly conflicted or committed to the decision in dispute that they cannot reasonably be expected to respond to a demand in good faith and within the ambit of the business judgment rule.” Werbowsky v. Collomb, 766 A.2d 123, 144 (Md. 2001).

Under Maryland law, demand may be excused where the board lacks independence, meaning “a majority of the directors are so personally and directly conflicted or committed to the decision in dispute that they cannot reasonably be expected to respond to a demand in good faith and within the ambit of the business judgment rule.” Werbowsky v. Collomb, 766 A.2d 123, 144 (Md. 2001).

Under Maryland law, demand may be excused where the board lacks independence, meaning “a majority of the directors are so personally and directly conflicted or committed to the decision in dispute that they cannot reasonably be expected to respond to a demand in good faith and within the ambit of the business judgment rule.” Werbowsky v. Collomb, 766 A.2d 123, 144 (Md. 2001).

Further, Defendants contend that Plaintiff’s assertion that W&C may not have acted independently is the sort of “generalized or speculative allegation” rejected by Werbowsky v. Collomb, 766 A.2d 123, 143 (Md. 2001).

Werbowsky v. Collomb, 362 Md. 581, 600-01 (2001).?

Werbowsky v. Collomb, 362 Md. 581, 600-01 (2001).?

Werbowsky v. Collomb, 766 A.2d 123, 133 (Md. 2001).

Id. at 143-44.

Because there was no “asset” of the company being wasted, merely the free alienation of the employees, there was -no corporate waste (see Werbowsky v Collomb, 362 Md 581, 610, 766 A2d 123, 139 [2001]).

Id. at 292, quoting from Werbowsky v. Collomb, 362 Md. 581, 620 (2001) (in turn citing Harhen v. Brown, supra, and requiring allegations that clearly demonstrated “in a very particular manner” that director was personally and directly conflicted or committed to decision in dispute).

July 13, 2004) (Florida one of nineteen states with universal demand statutes); In re Guidant Shareholders Derivative Litigation, 841 N.E.2d 571, 574 (Ind. 2006) (listing Florida as a participant in “the national trend towards the universal demand rule”), Werbowski v. Collumb, 766 A.2d 123, 141 (Md. 2001) (one of eighteen states); Marx v. Akers, 88 N.Y.2d 189, 197 , 666 N.E.2d 1034 , 644 N.Y.S.2d 121 (1996).

Dec. 21,1990); Werbowsky v. Collomb, 766 A.2d 123, 143-144 (Md.2001); Kas ter v. Modification Systems, Inc., 731 F.2d 1014, 1018 (2d Cir.1984); Gaubert v. Fed.

Werbowsky v. Collomb, 362 Md. 581, 618 , 766 A.2d 123, 143 (2001). .

A demand requirement “gives the directors — even interested, non-independent directors-an opportunity to consider or reconsider the issue in dispute ... [which] may be their first knowledge that a decision or transaction they made or approved is being questioned.” Werbowsky v. Collomb, 362 Md. 581 , 766 A.2d 123, 144 (2001) (apply the “Delaware test”).

Werbowsky v. Collomb, 362 Md. 581 , 766 A.2d 123, 144 (2001).

Werbowsky v. Collomb, 362 Md. 581 , 766 A.2d 123, 143-44 (2001).

In Werbowsky v. Collomb, 362 Md. 581 , 766 A.2d 123, 144 (2001), the Maryland Court of Appeals indicated that demand will seldom be excused: We adhere, for the time being, to the futility exception, but, consistent with what appears to be the prevailing philosophy throughout the country, regard it as a very limited exception, to be applied only when the allegations or evidence clearly demonstrate, in a very particular manner, either that (1) a demand, or a delay in awaiting …

Code Ann., Corps. & Ass’ns § 2-405.1 (2001); Werbowsky v. Collomb, 766 A.2d 123, 138 (Md. 2001).

See Werbowsky, supra, 362 Md. at 618 , 766 A.2d 123 (explaining that directors being “paid well for their services as directors” does not establish lack of independence); Calma on Behalf of Citrix Sys., Inc. v. Tem-pleton, 114 A.3d 563 , 576 (Del.Ch.2015) (“[Directors are generally not considered interested ... simply because [they] receive compensation from the company.”) (internal quotation and citation omitted).

See Shenker v. Laureate Educ., Inc., 411 Md. 317 , 338 n.14, 983 A.2d 408 (2009) ("This Court has noted the respect properly accorded Delaware decisions on corporate law ordinarily in our jurisprudence.” (quoting Werbowsky v. Collomb, 362 Md. 581, 618 , 766 A.2d 123 (2001) (internal quotation marks omitted))). 5 .

See Werbowsky v. Collomb, 362 Md. 581, 598-99 (2001) (obligations under § 2-405.1 “run[], however, to the corporation and not, at least directly, to the shareholders”).

See Werbowsky v. Collomb, 362 Md. 581 , 766 A.2d 123 , 133 (2001) ; Warren v. Fitzgerald, 189 Md. 476 , 56 A.2d 827 , 832-33 (1948).

See Werbowsky v. Collomb, 362 Md. 581 , 766 A.2d 123, 144 (2001).

See Werbowsky v. Collomb, 362 Md. 581, 618 , 766 A.2d 123, 143 (2001). 15 .

See Werbowsky v. Col-lomb, 362 Md. 581, 598-620 , 766 A.2d 123, 132-44 (2001); compare Guthrie v. Central Baptist Church of Baltimore City, 189 Md. 692, 697-98 , 57 A.2d 310, 312-13 (1948) (dismissing, where no demand made on board of trustees which had power to sue, complaint on behalf of church by moderator of members' meeting at which pastor was removed). .

Second, a party “may make a showing that a director has a conflict of interest relating to the board’s decision—i.e., that the director, or someone close to that director, has a personal financial interest in the outcome of the board’s decision.” Id.; see Boland, 423 Md. at 329 (“‘[D]irectors can neither appear on both sides of a transaction nor expect to derive any personal financial benefit from it in the sense of self-dealing, as opposed to a benefit which devolves upon t…

See Werbowsky v. Collomb, 362 Md. 581, 611 (2001); Revised Model Bus.