(a) A derivative proceeding shall be dismissed by the court on motion by the corporation if one of the groups specified in subsection (b) or (e) of this section has determined in good faith, after conducting a reasonable inquiry upon which its conclusions are based, that the maintenance of the derivative proceeding is not in the best interests of the corporation.

(b) Unless a panel is appointed pursuant to subsection (e) of this section, the determination in subsection (a) of this section shall be made by:

(1) A majority vote of qualified directors present at a meeting of the board of directors if the qualified directors constitute a quorum; or

(2) A majority vote of a committee consisting of two or more qualified directors appointed by majority vote of qualified directors present at a meeting of the board of directors, regardless of whether such qualified directors constitute a quorum.

(c) If a derivative proceeding is commenced after a determination has been made rejecting a demand by a shareholder, the complaint shall allege with particularity facts establishing either (1) that a majority of the board of directors did not consist of qualified directors at the time the determination was made, or (2) that the requirements of subsection (a) of this section have not been met.

(d) If a majority of the board of directors consisted of qualified directors at the time the determination was made, the plaintiff shall have the burden of proving that the requirements of subsection (a) of this section have not been met. If a majority of the board of directors did not consist of qualified directors at the time the determination was made, the corporation shall have the burden of proving that the requirements of subsection (a) of this section have been met.

(e) Upon motion by the corporation, the court may appoint a panel of one or more individuals to make a determination whether the maintenance of the derivative proceeding is in the best interests of the corporation. In such case, the plaintiff shall have the burden of proving that the requirements of subsection (a) of this section have not been met.

(P.A. 94-186, S. 79, 215; P.A. 06-68, S. 4.)

History: P.A. 94-186 effective January 1, 1997; P.A. 06-68 replaced references to “independent directors” with references to “qualified directors” and made technical and conforming changes throughout section, deleted former Subsec. (c) re factors which did not by themselves cause a director to be considered not independent, redesignated existing Subsecs. (d) to (f) as Subsecs. (c) to (e) and amended redesignated Subsec. (e) by replacing reference to “independent persons” with reference to “individuals”.

Dismissal of a derivative proceeding under section, which is substantially similar to Sec. 7.44 of the Model Business Corporation Act, presents a mixed question of fact and law and is subject to plenary review; conclusory allegation in complaint was insufficient to meet the particularity standard required of plaintiff in Subsec. (c); section embodies the business judgment rule which restricts a court's review of a corporate manager's decision. 141 CA 486.