
Contents
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I Discretionary Rather than Fiduciary Status I Discretionary Rather than Fiduciary Status
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II Demand Required–Demand Excused Jurisdictions II Demand Required–Demand Excused Jurisdictions
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A Demand Required Cases: The Permissive Business Judgment Rule Applied A Demand Required Cases: The Permissive Business Judgment Rule Applied
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B Demand Excused Cases, Same Result: The Permissive Business Judgment Rule B Demand Excused Cases, Same Result: The Permissive Business Judgment Rule
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C Demand Excused Cases: The Prospect of Fiduciary Standards C Demand Excused Cases: The Prospect of Fiduciary Standards
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D Applicable Standards for Board Excusal D Applicable Standards for Board Excusal
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E The Myth of the Reasonable Doubt Standard E The Myth of the Reasonable Doubt Standard
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III Universal Demand Jurisdictions III Universal Demand Jurisdictions
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A Applicable Standards for Dismissal of Derivative Litigation A Applicable Standards for Dismissal of Derivative Litigation
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B Minimizing the Existence of Independent Director Bias B Minimizing the Existence of Independent Director Bias
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C Absence of Fiduciary Standards C Absence of Fiduciary Standards
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IV State Approaches That Had (But No Longer Have) Fiduciary Substance IV State Approaches That Had (But No Longer Have) Fiduciary Substance
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V The Lack of Fiduciary Standards V The Lack of Fiduciary Standards
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5 Derivative Litigation: Corporate Directors Are “Discretionaries”
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Published:April 2025
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Abstract
This chapter focuses on derivative litigation, positing that the statutory and judicial standards that apply in this setting lack fiduciary substance. As a generality, much of the litigation that ensues as a consequence of alleged director and officer misconduct must be brought derivatively on the corporation’s behalf rather than as direct actions. In many states, pursuant to statutes and court decisions, these shareholder actions must be dismissed if adequately informed independent directors determine in good faith that the derivative suit is not in the corporation’s best interests. In making this determination whether to grant dismissal, lax standards often apply. Pursuant to the adoption and implementation of these lenient standards, fiduciary standards are lacking. To provide a more accurate portrayal, independent directors (loosely defined) act as “discretionaries”—rather than fiduciaries—in effectuating the dismissal of derivative actions against their fellow directors and corporate officers.
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