Michigan Court of Appeals rules that disinterested person statute is constitutional
BACKGROUNDThe use of the Michigan Business Corporation Act’s “disinterested person” is an attractive alternative approach to litigation in shareholder derivative suits. The statute authorizes a corporation to request that the court appoint a disinterested person to investigate the merit of claims raised by a shareholder in a derivative claim (a claim brought ostensibly on behalf of the corporation). That disinterested person is also authorized to make a determination whether the claim has merit such that continuing to prosecute it is in the best interest of the corporation. Per the statute, the court must dismiss the derivative action if, on motion by the corporation, a disinterested person determines in good faith and after reasonable investigation that the derivative proceeding is not in the corporation’s best interests.
The purpose of MCL 450.1495 is to give a corporate board an honest, informed, and objective opinion on whether maintaining particular litigation is in the best interests of the corporation. This statutory scheme is designed to save the corporation money in defending or prosecuting a weak case originally bought as a derivative claim.
The Michigan Court of Appeals, in a case of first impression of this statute, rejected the plaintiff’s constitutional challenges to MCL 450.1495. The court explained how the statute only requires the court to respect and implement the business judgment of the disinterested person or persons concerning whether any portion of a suit should continue if the decision was made reasonably and in good faith. This statute provides a mechanism for corporations to avoid and/or minimize costly litigation asserted by disgruntled shareholders.
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