16-6a-612 - Derivative suits.
16-6a-612. Derivative suits.
(1) Without affecting the right of a member or director to bring a proceeding against anonprofit corporation or its directors or officers, a proceeding may be brought in the right of anonprofit corporation to procure a judgment in its favor by a complainant who is:
(a) a voting member; or
(b) a director in a nonprofit corporation that does not have voting members.
(2) A complainant may not commence or maintain a derivative proceeding unless thecomplainant:
(a) is a voting member, or a director in a nonprofit corporation that does not have votingmembers, at the time the proceeding is brought; and
(b) fairly and adequately represents the nonprofit corporation's interests in enforcing thenonprofit corporation's right.
(3) (a) A complainant may not commence a derivative proceeding until:
(i) a written demand is made upon the nonprofit corporation to take suitable action; and
(ii) 90 days have expired from the date the demand described in Subsection (3)(a)(i) ismade, unless:
(A) the complainant is notified before the 90-day period expires that the demand isrejected by the nonprofit corporation; or
(B) irreparable injury to the nonprofit corporation would result by waiting for the 90-dayperiod's expiration.
(b) A complaint in a derivative proceeding shall be:
(i) verified; and
(ii) allege with particularity the demand made to obtain action by the board of directors.
(c) A derivative proceeding shall comply with the procedures of Utah Rules of CivilProcedure, Rule 23.1.
(d) The court shall stay any derivative proceeding until the inquiry is completed and foran additional period as the court considers appropriate if:
(i) the nonprofit corporation commences an inquiry into the allegations made in thedemand or complaint; and
(ii) a person or group described in Subsection (4) is conducting an active review of theallegations in good faith.
(e) If a nonprofit corporation proposes to dismiss a derivative proceeding pursuant toSubsection (4)(a), discovery by a complainant in the derivative proceeding:
(i) is limited to facts relating to:
(A) whether the person or group conducting the inquiry is independent and disinterested;
(B) the good faith of the inquiry; and
(C) the reasonableness of the procedures followed by the person or group conducting theinquiry; and
(ii) may not extend to any facts or substantive issues with respect to the act, omission, orother matter that is the subject matter of the derivative proceeding.
(4) (a) A derivative proceeding shall be dismissed by the court on motion by thecorporation if a person or group specified in Subsection (4)(b) or (4)(f) determines in good faith,after conducting a reasonable inquiry upon which the person's or group's conclusions are based,that the maintenance of the derivative proceeding is not in the best interest of the nonprofitcorporation.
(b) Unless a panel is appointed pursuant to Subsection (4)(f), the determination inSubsection (4)(a) shall be made by:
(i) a majority vote of independent directors present at a meeting of the board of directors,if the independent directors constitute a quorum; or
(ii) a majority vote of a committee consisting of two or more independent directorsappointed by a majority vote of independent directors present at a meeting of the board ofdirectors, whether or not the independent directors appointing the committee constituted aquorum.
(c) None of the following by itself causes a director to be considered not independent forpurposes of this section:
(i) the nomination or election of the director by persons:
(A) who are defendants in the derivative proceeding; or
(B) against whom action is demanded;
(ii) the naming of the director as:
(A) a defendant in the derivative proceeding; or
(B) a person against whom action is demanded; or
(iii) the approval by the director of the act being challenged in the derivative proceedingor demand if the act resulted in no personal benefit to the director.
(d) If a derivative proceeding is commenced after a determination is made rejecting ademand by a complainant, the complaint shall allege with particularity facts establishing either:
(i) that a majority of the board of directors did not consist of independent directors at thetime the determination was made; or
(ii) that the requirements of Subsection (4)(a) are not met.
(e) (i) If a majority of the board of directors does not consist of independent directors atthe time the determination is made to reject a demand by a shareholder, the corporation has theburden of proving that the requirements of Subsection (4)(a) are met.
(ii) If a majority of the board of directors consists of independent directors at the time thedetermination is made to reject a demand by a complainant, the plaintiff has the burden ofproving that the requirements of Subsection (4)(a) are not met.
(f) (i) The court may appoint a panel of one or more independent persons upon motion bythe corporation to make a determination whether the maintenance of the derivative proceeding isin the best interest of the corporation.
(ii) If the court appoints a panel under Subsection (4)(f)(i), the plaintiff has the burden ofproving that the requirements of Subsection (4)(a) are not met.
(g) A person may appeal an interlocutory order of a court that grants or denies a motionto dismiss brought pursuant to Subsection (4)(a).
(5) On termination of a derivative proceeding the court may order:
(a) the nonprofit corporation to pay the plaintiff's reasonable expenses, including attorneyfees, incurred in the proceeding, if it finds that the proceeding results in a substantial benefit tothe nonprofit corporation;
(b) the plaintiff to pay a defendant's reasonable expenses, including attorney fees,incurred in defending the proceeding, if it finds that the proceeding was commenced ormaintained:
(i) without reasonable cause; or
(ii) for an improper purpose; or
(c) a party to pay an opposing party's reasonable expenses, including attorney fees,incurred because of the filing of a pleading, motion, or other paper, if the court finds that thepleading, motion, or other paper was:
(i) (A) not well grounded in fact, after reasonable inquiry; or
(B) not warranted by existing law or a good faith argument for the extension,modification, or reversal of existing law; and
(ii) interposed for an improper purpose, such as to:
(A) harass;
(B) cause unnecessary delay; or
(C) cause needless increase in the cost of litigation.
Amended by Chapter 228, 2006 General Session