Futility of Demand on Board of Directors in Derivative Suit
The U.S. District Court for the Eastern District of Tennessee recently rejected an argument that might have given shareholders an end run around the demand requirements for derivative suits. See Lay v. Burley Stabilization Corp, 2010 WL 2639931 (E.D. Tenn. Jun. 28, 2010). In Tennessee, plaintiffs in a derivative action must “allege with particularity the demand made, if any, to obtain action by the directors and either why the plaintiffs could not obtain the action or why they did not make the demand.” Tenn. Code Ann. ยง48-56-401(c). The demand requirement is typically excused if the plaintiff establishes that demand would be futile. However, to establish futility, plaintiffs must demonstrate that: (1) that the board is interested and not independent and (2) that the challenged transaction is not protected by the business judgment rule.
By Limited Partnership: What Does It Take to Exist?
In Tanner v. Whiteco, L.P., et al., 2010 WL 1956733 (Tenn. Ct. App. May 17, 2010), the Tennessee Court of Appeals considered what constitutes a limited partnership under Tennessee law. In that case, Mr. Thomas filed a certificate of limited partnership with the Secretary of State, told his children while he was doing his estate planning that they had an interest in the limited partnership, and after his death the children signed a written acknowledgement that they had an interest in the limited partnership. Despite these facts, the trial court held that there was no limited partnership.
