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Justices answer certified question

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The Indiana Supreme Court Monday answered the certified question sent to them by the U.S. District Court in New York about what standard should be applied in determining whether a director is “disinterested” under Indiana Code Section 23-1-32-4(d).

The U.S. District Court for the Southern District of New York certified the question of “What standard should be applied in determining whether a director is ‘disinterested’ within the meaning of Indiana Code § 23-1-32-4(d), and more specifically, is it the same standard as is used in determining whether a director is disinterested for purposes of excusing demand on the corporation’s directors under Federal Rule of Civil Procedure 23.1 and Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993)?”

The justices accepted the question in November 2009. The question comes from the case, In re ITT Derivative Litigation, Sylvia B. Piven, et al. v. ITT Corp., et al.,  No. 94S00-0911-CQ-508. One of ITT’s business units supplies night vision equipment to the military; ITT was charged and fined because it exported military technology to other countries in violation of the U.S. State Department restrictions. The instant case is a derivative action, on behalf of ITT, brought by ITT shareholders against ITT directors. The plaintiffs want to recover the criminal fines and penalties paid, alleging that the directors violated fiduciary duties by not monitoring and supervising management of the unit.

Shareholder Robert Wilkinson didn’t make any demand on ITT’s board to pursue the claims; shareholder Anthony Reale did. The board appointed a Special Litigation Committee to consider whether the corporation should pursue the claims in question, and the District Court ruled the three, independent, outside directors appointed to the committee were not “disinterested” under I.C. Section 23-1-32-4.

The high court held that the Indiana Business Corporation Law employs the same standard for showing a “lack of disinterestedness” both as to the composition of special board committees under the statute and to the requirement that a shareholder must make a demand that the corporation’s board act unless the demand would be futile.

The District Court properly concluded that in assessing the futility of a demand, Indiana law determines whether a director is “disinterested” by asking whether a derivative claim poses a significant risk of personal liability for the director, which is the Rales standard, wrote Chief Justice Randall T. Shepard.

“Determining that a named director is ‘interested’ as respects all claims save for the outright frivolous would likely preclude most directors from serving on an SLC which considers shareholder demands,” wrote the chief justice. “Ousting directors from such roles on a broader basis than that mandated by Rales undermines the intent of Indiana’s BCL.”

Neither the statutory language nor the policies underlying the BCL suggest that the standard for showing a lack of disinterestedness under the statute should be more “plaintiff-friendly” than the showing required in the demand futility context, the justice continued.

Justice Frank Sullivan did not participate in answering the certified question.
 

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  1. Future generations will be amazed that we prosecuted people for possessing a harmless plant. The New York Times came out in favor of legalization in Saturday's edition of the newspaper.

  2. Well, maybe it's because they are unelected, and, they have a tendency to strike down laws by elected officials from all over the country. When you have been taught that "Democracy" is something almost sacred, then, you will have a tendency to frown on such imperious conduct. Lawyers get acculturated in law school into thinking that this is the very essence of high minded government, but to people who are more heavily than King George ever did, they may not like it. Thanks for the information.

  3. I pd for a bankruptcy years ago with Mr Stiles and just this week received a garnishment from my pay! He never filed it even though he told me he would! Don't let this guy practice law ever again!!!

  4. Excellent initiative on the part of the AG. Thankfully someone takes action against predators taking advantage of people who have already been through the wringer. Well done!

  5. Conour will never turn these funds over to his defrauded clients. He tearfully told the court, and his daughters dutifully pledged in interviews, that his first priority is to repay every dime of the money he stole from his clients. Judge Young bought it, much to the chagrin of Conour’s victims. Why would Conour need the $2,262 anyway? Taxpayers are now supporting him, paying for his housing, utilities, food, healthcare, and clothing. If Conour puts the money anywhere but in the restitution fund, he’s proved, once again, what a con artist he continues to be and that he has never had any intention of repaying his clients. Judge Young will be proven wrong... again; Conour has no remorse and the Judge is one of the many conned.

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