Shareholder Derivative Suit – Demand Futility

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7^th Circuit Court of Appeals

Case Name: Chad Taylor v. Sardar Biglari

Case No.: 15-1828

Officials: POSNER, FLAUM, and WILLIAMS, Circuit Judges.

Focus: Shareholder Derivative Suit – Demand Futility

Plaintiff’s allege that board approval of transactions seemingly to the benefit of its CEO only without sound factual support.

“The plaintiffs argue that some of the directors are be- holden to Biglari and thus not independent. One is conceded to have close personal ties to him, dating from the time when he was Biglari’s professor at Trinity University in Texas. This may raise a question about that director’s independence, but that leaves four other directors (besides Biglari). They are a solid majority of the six-member board and the entire membership of the Governance, Compensation and Nominating Committee. One of the four had served on the board of a company that Biglari tried unsuccessfully to take over—but that doesn’t suggest he’s in Biglari’s pocket! An- other, Ruth J. Person, resigned in 2014 as chancellor of the University of Michigan-Flint, a branch of the University of Michigan, and the plaintiffs argue that she’s now financially dependent on her salary as a member of the board of Biglari Holdings and so will kowtow to Biglari. That’s unlikely. That a director is paid for his or her services does not establish the kind of financial interest that would excuse demand. Grobow v. Perot, supra, 539 A.2d at 188. Nor is Person financially dependent on her income as a member of Biglari Holdings’ board. She did not retire from the university, but merely returned to her professorship (she is a professor of management) at the university. Her website recites an extensive list of distinguished positions that she has held. “Ruth Per- son, Ph.D., Professor of Management,” www.umflint.edu/som/ruth-person (visited Feb. 16, 2016).”

Affirmed

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.