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In Oliveira v. Sugarman,[1] the Court of Special Appeals of Maryland said that, in reviewing corporate decisions made by a board of directors, it needs to consider the business judgment rule—a presumption that the board 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. The court explained that a shareholder derivative action, like this one, begins with a demand on the board and the board is required to make a decision as to whether to pursue the demanded lawsuit.… Read the rest

In Oliveira v. Sugarman,[1] two shareholders of iStar Financial Inc. (“iStar”), a Maryland corporation, sued former and current members of the company’s board of directors and senior management regarding employee compensation plans. In 2009, iStar approved an executive compensation plan to award shares of the company based on stock performance in order to retain key employees and to reduce the company’s tax burden. During the financial crisis, however, iStar became concerned that it did not have enough shares available for the performance-based awards and that key employees might leave for better-paying opportunities.… Read the rest

In our previous blog series on Texas Double-Derivative Shareholder Suit, we introduced the concept of business judgment rule—the presumption that directors or managers, in performing their functions, were honest and well-meaning and that their decisions were informed and in the best interests of the company. We then delved a little deeper into the concept in another blog on the business judgment rule under New York law and discussed when board decisions might not be protected under the business judgment rule.… Read the rest