ILNews

Justices answer certified question

Back to TopE-mailPrintBookmark and Share

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.
 

ADVERTISEMENT

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. For many years this young man was "family" being my cousin's son. Then he decided to ignore my existence and that of my daughter who was very hurt by his actions after growing up admiring, Jason. Glad he is doing well, as for his opinion, if you care so much you wouldn't ignore the feelings of those who cared so much about you for years, Jason.

  2. Good riddance to this dangerous activist judge

  3. What is the one thing the Hoosier legal status quo hates more than a whistleblower? A lawyer whistleblower taking on the system man to man. That must never be rewarded, must always, always, always be punished, lest the whole rotten tree be felled.

  4. I want to post this to keep this tread alive and hope more of David's former clients might come forward. In my case, this coward of a man represented me from June 2014 for a couple of months before I fired him. I knew something was wrong when he blatantly lied about what he had advised me in my contentious and unfortunate divorce trial. His impact on the proceedings cast a very long shadow and continues to impact me after a lengthy 19 month divorce. I would join a class action suit.

  5. The dispute in LB Indiana regarding lake front property rights is typical of most beach communities along our Great Lakes. Simply put, communication to non owners when visiting the lakefront would be beneficial. The Great Lakes are designated navigational waters (including shorelines). The high-water mark signifies the area one is able to navigate. This means you can walk, run, skip, etc. along the shores. You can't however loiter, camp, sunbath in front of someones property. Informational signs may be helpful to owners and visitors. Our Great Lakes are a treasure that should be enjoyed by all. PS We should all be concerned that the Long Beach, Indiana community is on septic systems.

ADVERTISEMENT