Banana Inc. is a major nationwide producer of laptop computers, and the business is incorporated in a jurisdiction that follows the Model Business Corporation Act. Banana Inc.'s shares are publicly listed and traded on the New York Stock Exchange. The corporation is governed by a five-member board of directors. 

In order to produce its laptop computers, Banana Inc. relies on component parts from several other companies both inside and outside the United States. Lauren Sibrian, a Banana Inc. shareholder, is close personal friends with Paul Pinkowski, the spouse of one of Banana Inc.'s directors. One night when Lauren and Paul are out for dinner together, Paul tells Lauren that last year he started a business called "MFI Products," which sells laptop components directly to Banana Inc. Paul explains that he's been making more money than he ever thought possible because Banana Inc. is paying far more than the market price for MFI Products' laptop components. Lauren is surprised that Banana would pay more than the market price for anything because she has always understood the company to be frugal. Lauren asks Paul how he was able to get Banana to pay such a high price. Paul explains that he got the idea from the spouse of another one of Banana Inc.'s directors, who also has their own side business and sells laptop components to Banana. Paul says there is an understanding among certain Banana Inc. directors that no director will vote against a Banana Inc. contract that goes to another director's spouse. 

Lauren is a well-connected and active shareholder; she knows that Banana Inc.'s board of directors is heavily involved in evaluating every company that provides component parts for a Banana Inc. laptop. As she drives home from dinner, Lauren begins to think that Paul's spouse and several other members of the Banana Inc. board of directors are operating in violation of their fiduciary duty of loyalty to the corporation. Lauren has heard of something called a shareholder derivative suit and that it potentially involves the awkward process of needing to file a written demand on the corporation. Lauren thinks there's no way that the corporation would agree to take on the lawsuit, especially with at least two of the five directors potentially having material financial interests in the transactions Lauren thinks may be a problem. 

 

Lauren Sibrian hires you as her lawyer. She has decided she would like to bring a shareholder derivative action against the Banana Inc. directors who may have approved conflicting interest transactions in violation of their fiduciary duty of loyalty. Based on the facts above, does Lauren need to file a demand on the corporation before she proceeds with her lawsuit? 

 

Answer rating: 100% (QA)

In the context of a shareholder derivative action Lauren Sibrian may be required to file a demand on ... View the full answer