Tuesday, February 26, 2013

Barr v. Wackman case brief

Barr v. Wackman case brief summary
36 N.Y.2d 371

SYNOPSIS: Defendant directors appealed an order of the Appellate Division of the Supreme Court in the First Judicial Department affirming an order of the lower court denying a motion by directors to dismiss plaintiff shareholder's derivative complaint.

-Derivative action by shareholder of Talcott against Gulf & Western, First Capital, a Gulf & Western subsidiary and 16 Talcott directors.
-Plaintiff did not make demand.
-Five of the 16 directors are affiliated with Talcott as managers. The remaining are unaffiliated. The complaint alleges they failed to exercise their independent business judgment.
-In 1972 Gulf & Western and Talcott agreed to merge at a value of $24 a Talcott share.
-This plan was abandoned in favor of a tender offer by First Capital for $20 a share. The complaint alleged that this was done so that 9 Talcott officers, including 3 of the defendant directors, could receive personal benefits.
-The 5 directors were allegedly self dealing.
-The remaining unaffiliated directors were alleged to have breached their duties of care and diligence.
-Plaintiff shareholders brought a shareholder's derivative action without first making a demand upon the corporation's board of directors, alleging that a demand would have been futile because the board of directors participated in, authorized, and approved the challenged acts.
-Shareholders alleged that directors entered into a scheme to help another company gain control over the corporation in return for certain pecuniary and other personal benefits.

Whether allegations of board participation in and approval of acts involving bias and self dealing by minority affiliated directors and breach of fiduciary duties of care and diligence by remaining minority unaffiliated directors through their participation and approval, although not self dealing, are sufficient to withstand a motion to dismiss for failure to make a demand.

-Directors' motion to dismiss for failure to make a demand was denied, and the denial affirmed on appeal.
-Yes, the demand was excused because directors were accused of patent breach of fiduciary duties and named as defendants.

Since the demand would have been futile, it need not have been made.

-Demand is excused where the board itself is accused of patent breach of fiduciary duties.
-The demand requirement is to weed out unnecessary or illegitimate suits.
- A futile demand need not be made. Complaint must do more than simply name individual board members as defendants.
-Here, acting officially, the board qua board, is claimed to have participated or acquiesced in assertively wrongful transactions.
OUTCOME: The order denying the motion to dismiss was affirmed, with costs, and the court answered the certified question in the affirmative.


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