No. A shareholder can't just skip asking the board of directors to handle the problem. The law assumes that directors are doing what's best for the company (this is called the 'business judgment rule'). To get around this, the shareholder has to provide specific, concrete facts that make a judge seriously doubt that the directors are independent or that their decision made any business sense. In this case, the shareholder just made general accusations. He didn't provide any specific proof that the main director, Fink, actually controlled the other directors, or that the contract was so bad it couldn't possibly be a real business decision. Therefore, he should have made the demand first.

I conclude that a shareholder can only skip asking the directors to address an issue if they state specific facts that create reasonable doubt that the directors' actions would be protected by the business judgment rule. The shareholder must provide facts showing either (1) reasonable doubt that the directors are unbiased and independent, or (2) reasonable doubt that the challenged action was a proper business decision. Because Lewis didn't ask the directors and didn't provide specific facts showing that asking would be pointless, we reverse the lower court's denial of the motion to dismiss. Just the possibility of personal liability for approving a questioned deal isn't enough to challenge directors' independence or lack of bias. Lewis's claims about Fink's control over the board, the board approving Fink's employment deal, and the board being against the lawsuit don't create a reasonable doubt that the business judgment rule applies. So Lewis can't skip asking the directors to address the issues.

The business judgment rule "is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company."

—demand is futile if "under the particularized facts alleged, a reasonable doubt is created that:(1) the directors are disinterested and independent [or](2) the challenged transaction was otherwise the product of a valid exercise of business judgment."

The KRS 271B. 8-300 (1) requirements of good faith, acting on an informed basis and in the best interests of the corporation are principles most often associated with the business judgment rule.

The Supreme Court of Delaware has defined interest in this context to mean "that directors can neither appear on both sides of a transaction nor expect to derive any personal financial benefit from it in the sense of self-dealing, as opposed to a benefit which devolves upon the corporation or all stockholders generally."

Delaware law requires, generally, that as a condition precedent to a plaintiff bringing a shareholder derivative lawsuit, said plaintiff must make a pre-suit demand upon the board of directors to prosecute the contemplated action

Directors "have a duty to inform themselves, prior to making a business decision, of all material information reasonably available to them. Having become so informed, they must then act with requisite care in the discharge of their duties."

—in cases where the traditional business judgment rule is applicable and the board acted with due care, in good faith, and in the honest belief that they are acting in the best interests of the stockholders (which is not this case), the Court gives great deference to the substance of the directors' decision and will not invalidate the decision, will not examine its reasonableness …

"Independence means that a director's decision is based on the corporate merits of the subject before the board rather than extraneous considerations or influences

No. A shareholder's pre-suit demand is not excused as futile unless the plaintiff alleges particularized facts that create a reasonable doubt about the board's independence or that the challenged transaction is protected by the business judgment rule. The court reasoned that the business judgment rule presumes directors act on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company. To overcome this presumption at the pleading stage, a plaintiff cannot simply state that directors approved a transaction or that they are named as defendants. Regarding director independence, allegations of domination must be supported by particularized facts showing that a director is beholden to a controlling person, not just that they were selected by that person or that the person owns a substantial, non-majority block of stock. Regarding the substance of the transaction, the complaint must allege particularized facts that would support a finding of corporate waste, which it failed to do here, as the allegations were conclusory and insufficient to overcome the presumption that the board's decision was a valid exercise of business judgment.

I conclude that demand can only be excused where facts are alleged with particularity which create a reasonable doubt that the directors' action was entitled to the protections of the business judgment rule. The plaintiff must allege particularized facts that either (1) raise a reasonable doubt that the directors are disinterested and independent or (2) raise a reasonable doubt that the challenged transaction was the product of a valid exercise of business judgment. Because the plaintiff failed to make a demand and to allege particularized facts indicating that such demand would be futile, we reverse the Court of Chancery's denial of the motion to dismiss. The mere threat of personal liability for approving a questioned transaction, standing alone, is insufficient to challenge either the independence or disinterestedness of directors. Plaintiff's allegations of Fink's domination and control of the board, the board's approval of the employment agreement, and board hostility to the derivative action do not raise a reasonable doubt as to the applicability of the business judgment rule. Therefore, demand is not excused.

Aronson v. Lewis

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