New England Legal Foundation
  • Home
  • About
    • Mission & History
    • Annual Reports
    • Board of Directors
    • State Advisory Councils >
      • Connecticut
      • Maine
      • Massachusetts
      • New Hampshire
      • Rhode Island
      • Vermont
    • Trustees
    • Members
    • Staff
    • Job & Internship Opportunities
  • News & Events
  • Docket
  • Briefs
  • Donate
  • Contact

Halebian v. Berv, et al.  

10/12/2010

 
Defending the Business Judgment Rule in Massachusetts

Responding to a question certified to it by the Second Circuit, the Massachusetts Supreme Judicial Court confirmed, in a decision issued on August 23, 2010, that a corporation may seek dismissal of a shareholder derivative suit based on the business judgment doctrine after suit has been filed. The plaintiff, whose demand was ultimately rejected by the board of directors of the Massachusetts business trust on whose behalf his suit had been filed, sought to draw a negative inference from what the SJC in its opinion recognized was unfortunate language in Mass. G.L. c. 156D (the statute that in 2003 codified, inter alia, the rules governing shareholder derivative claims), to argue that the statute required the board of directors to exercise its business judgment and refuse the demand before he filed suit.  He relied for support on Mass. G. L. c. 156D, § 7.44(a) which provides that “[a] derivative proceeding commenced after rejection of a demand shall be dismissed by the court on motion by the corporation if the court finds that [the board of directors] has determined in good faith after conducting a reasonable inquiry upon which its conclusions are based that the maintenance of the derivative proceeding is not in the best interests of the corporation[.]”  (Emphasis added.)  Plaintiff also relied on § 7.42 of the statute, which generally gives shareholders the right to file suit 90 days after making written demand on the corporation.  

NELF argued in its amicus brief in support of the defendants that, despite the isolated phrase “after rejection” in the business judgment provision, a consideration of all of the relevant provisions of c. 156D, including the drafters’ comments, defeats plaintiff’s interpretation and clearly allows a corporation’s board of directors to obtain dismissal of a shareholder derivative suit based on a post-suit rejection of a shareholder’s demand.  Among its arguments, NELF pointed to the stay provision in the statue, § 7.43, which  authorizes a court to stay a derivative suit to allow a board to conclude its inquiry into the allegations made in the demand or complaint beyond the 90 days provided in § 7.42. Moreover, the comment to that provision expressly states that a stay would be appropriate where a board needs more time to complete its inquiry after a complaint is filed.  Perhaps most significantly, the drafter’s comment to § 7.44 itself expressly states, contra to the “after rejection” language in that provision giving rise to the certified question in this case, that a board can reject a shareholder demand either before or after a derivative suit has been filed.  

In its unanimous decision, the SJC embraced NELF’s interpretation of the Act, concluding that the Legislature expressly intended to allow a corporation’s board to seek dismissal of a shareholder derivative suit based on a post-suit refusal of the demand underlying the suit.  The Court agreed with NELF that, notwithstanding the “after rejection” language,  “[t]he language in various other provisions of the Act [and] language within [the provision containing the “after rejection” language] itself, clearly indicates that the Legislature intended that a corporation should be entitled to dismiss a derivative proceeding under the business judgment doctrine regardless whether the corporation’s rejection of the shareholder’s demand precedes or follows the filing of the derivative suit.”

 


Comments are closed.

    The Docket

    To obtain a copy of any of NELF's briefs, contact us at info@nelfonline.org.

    Categories

    All
    1st Circuit Court Of Appeals
    2nd Circuit Court Of Appeals
    3rd Circuit Court Of Appeals
    Business Litigation Session
    CT
    CT Superior Court
    CT Supreme Court
    Employer Employee Relationships
    February 2018
    February 2019
    Government Regulation/Administration Of Justice
    MA
    MA Appeals Court
    MA Division Of Administrative Law Appeals
    March 2015
    MA Superior Court
    MA Supreme Judicial Court
    MA US District Court
    ME
    ME Supreme Judicial Court
    NH
    NH Supreme Court
    Property Rights
    RI
    RI Supreme Court
    SCOTUS
    United States Supreme Court
    US Court Of Appeals Federal Circuit
    US District Court ME
    VT
    VT Supreme Court

    RSS Feed

    Archives

    August 2020
    June 2020
    January 2020
    June 2019
    April 2019
    October 2018
    June 2018
    February 2018
    October 2017
    October 2016
    June 2016
    February 2016
    October 2015
    June 2015
    March 2015
    October 2014
    June 2014
    February 2014
    October 2013
    June 2013
    February 2013
    October 2012
    June 2012
    February 2012
    October 2011
    June 2011
    February 2011
    October 2010
    June 2010
    February 2010
    October 2009
    February 2009
    October 2008
    June 2008
    February 2008
    October 2007
    June 2007
    October 2006
    June 2006
    February 2006
    October 2005
    June 2005
    February 2005
    October 2004
    June 2004
    February 2004
    October 2003
    May 2003
    February 2003
    September 2002
    May 2002
    February 2002
    May 2001