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H0530...........................................................by BUSINESS
CORPORATIONS - Repeals and adds to existing law to provide for derivative
actions by shareholders on behalf of a corporation.
01/28 House intro - 1st rdg - to printing
01/29 Rpt prt - to Bus
02/10 Rpt out - rec d/p - to 2nd rdg
02/11 2nd rdg - to 3rd rdg
02/16 3rd rdg - PASSED - 66-0-4
AYES -- Alltus, Barraclough, Bell, Bieter, Bivens, Black(15),
Black(23), Boe, Bruneel, Callister, Campbell, Chase, Clark, Crow,
Cuddy, Deal, Denney, Ellsworth, Field(13), Field(20), Gagner, Geddes,
Gould, Hadley, Hansen, Henbest, Hornbeck, Jaquet, Jones(9),
Jones(22), Jones(20), Judd, Kellogg, Kempton, Kendell, Kjellander,
Kunz, Lake, Linford, Loertscher, Mader, Marley, McKague, Meyer,
Miller, Mortensen, Newcomb, Pischner, Pomeroy, Reynolds, Richman,
Ridinger, Robison, Sali, Schaefer, Stevenson, Stoicheff, Stubbs,
Taylor, Tilman, Tippets, Trail, Watson, Wheeler, Zimmermann,
Mr Speaker
NAYS -- None
Absent and excused -- Barrett, Crane, Stone, Wood
Floor Sponsor - Kjellander
Title apvd - to Senate
02/17 Senate intro - 1st rdg - to Com/HuRes
03/06 Rpt out - rec d/p - to 2nd rdg
03/09 2nd rdg - to 3rd rdg
03/17 3rd rdg - PASSED - 32-0-3
AYES--Andreason, Boatright, Branch, Bunderson, Burtenshaw, Cameron,
Crow, Danielson, Darrington, Deide, Dunklin, Frasure, Geddes,
Hawkins, Ingram, Keough, King, Lee, McLaughlin, Noh, Parry,
Richardson, Risch, Sandy, Schroeder, Sorensen, Stennett, Sweeney,
Thorne, Twiggs, Wheeler, Whitworth
NAYS--None
Absent and excused--Hansen, Ipsen, Riggs
Floor Sponsor - Risch
Title apvd - to House
03/18 To enrol
03/18 Rpt enrol - Sp signed
03/19 Pres signed - to Governor
03/20 Governor signed
Session Law Chapter 223
Effective: 07/01/98
H0530|||| LEGISLATURE OF THE STATE OF IDAHO |||| Fifty-fourth Legislature Second Regular Session - 1998IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 530 BY BUSINESS COMMITTEE 1 AN ACT 2 RELATING TO THE IDAHO BUSINESS CORPORATION ACT; REPEALING SECTION 30-1-740, 3 IDAHO CODE; AMENDING PART 7, CHAPTER 1, TITLE 30, IDAHO CODE, BY THE ADDI- 4 TION OF A NEW SECTION 30-1-740, IDAHO CODE, TO PROVIDE A DEFINITION; 5 AMENDING PART 7, CHAPTER 1, TITLE 30, IDAHO CODE, BY THE ADDITION OF A NEW 6 SECTION 30-1-741, IDAHO CODE, TO PROVIDE THE STANDING OF A SHAREHOLDER TO 7 MAINTAIN A DERIVATIVE PROCEEDING; AMENDING PART 7, CHAPTER 1, TITLE 30, 8 IDAHO CODE, BY THE ADDITION OF A NEW SECTION 30-1-742, IDAHO CODE, TO 9 REQUIRE A DEMAND BY THE SHAREHOLDER UPON THE CORPORATION BEFORE A DERIVA- 10 TIVE PROCEEDING MAY BE COMMENCED; AMENDING PART 7, CHAPTER 1, TITLE 30, 11 IDAHO CODE, BY THE ADDITION OF A NEW SECTION 30-1-743, IDAHO CODE, TO PRO- 12 VIDE FOR A STAY OF PROCEEDINGS; AMENDING PART 7, CHAPTER 1, TITLE 30, 13 IDAHO CODE, BY THE ADDITION OF A NEW SECTION 30-1-744, IDAHO CODE, TO PRO- 14 VIDE FOR DISMISSAL OF THE PROCEEDING; AMENDING PART 7, CHAPTER 1, TITLE 15 30, IDAHO CODE, BY THE ADDITION OF A NEW SECTION 30-1-745, IDAHO CODE, TO 16 PROVIDE FOR DISCONTINUANCE OR SETTLEMENT OF THE PROCEEDING; AMENDING PART 17 7, CHAPTER 1, TITLE 30, IDAHO CODE, BY THE ADDITION OF A NEW SECTION 18 30-1-746, IDAHO CODE, TO PROVIDE FOR PAYMENT OF EXPENSES ON TERMINATION OF 19 THE PROCEEDING; AND AMENDING PART 7, CHAPTER 1, TITLE 30, IDAHO CODE, BY 20 THE ADDITION OF A NEW SECTION 30-1-747, IDAHO CODE, TO PROVIDE FOR APPLI- 21 CATION TO FOREIGN CORPORATIONS. 22 Be It Enacted by the Legislature of the State of Idaho: 23 SECTION 1. That Section 30-1-740, Idaho Code, be, and the same is hereby 24 repealed. 25 SECTION 2. That Part 7, Chapter 1, Title 30, Idaho Code, be, and the same 26 is hereby amended by the addition thereto of a NEW SECTION , to be 27 known and designated as Section 30-1-740, Idaho Code, and to read as follows: 28 30-1-740. DEFINITIONS. As used in sections 30-1-741 through 30-1-747, 29 Idaho Code, "derivative proceeding" means a civil suit in the right of a 30 domestic corporation or, to the extent provided in section 30-1-747, Idaho 31 Code, in the right of a foreign corporation. 32 SECTION 3. That Part 7, Chapter 1, Title 30, Idaho Code, be, and the same 33 is hereby amended by the addition thereto of a NEW SECTION , to be 34 known and designated as Section 30-1-741, Idaho Code, and to read as follows: 35 30-1-741. STANDING. A shareholder may not commence or maintain a deriva- 36 tive proceeding unless the shareholder: 37 (1) Was a shareholder of the corporation at the time of the act or omis- 38 sion complained of or became a shareholder through transfer by operation of 39 law from one (1) who was a shareholder at that time; and 40 (2) Fairly and adequately represents the interests of the corporation in 2 1 enforcing the right of the corporation. 2 SECTION 4. That Part 7, Chapter 1, Title 30, Idaho Code, be, and the same 3 is hereby amended by the addition thereto of a NEW SECTION , to be 4 known and designated as Section 30-1-742, Idaho Code, and to read as follows: 5 30-1-742. DEMAND. No shareholder may commence a derivative proceeding 6 until: 7 (1) A written demand has been made upon the corporation to take suitable 8 action; and 9 (2) Ninety (90) days have expired from the date the demand was made 10 unless the shareholder has earlier been notified that the demand has been 11 rejected by the corporation or unless irreparable injury to the corporation 12 would result by waiting for the expiration of the ninety (90) day period. 13 SECTION 5. That Part 7, Chapter 1, Title 30, Idaho Code, be, and the same 14 is hereby amended by the addition thereto of a NEW SECTION , to be 15 known and designated as Section 30-1-743, Idaho Code, and to read as follows: 16 30-1-743. STAY OF PROCEEDINGS. If the corporation commences an inquiry 17 into the allegations made in the demand or complaint, the court may stay any 18 derivative proceeding for such period as the court deems appropriate. 19 SECTION 6. That Part 7, Chapter 1, Title 30, Idaho Code, be, and the same 20 is hereby amended by the addition thereto of a NEW SECTION , to be 21 known and designated as Section 30-1-744, Idaho Code, and to read as follows: 22 30-1-744. DISMISSAL. (1) A derivative proceeding shall be dismissed by 23 the court on motion by the corporation if one (1) of the groups specified in 24 subsection (2) or (6) of this section has determined in good faith after con- 25 ducting a reasonable inquiry upon which its conclusions are based that the 26 maintenance of the derivative proceeding is not in the best interests of the 27 corporation. 28 (2) Unless a panel is appointed pursuant to subsection (6) of this sec- 29 tion, the determination in subsection (1) of this section shall be made by: 30 (a) A majority vote of independent directors present at a meeting of the 31 board of directors if the independent directors constitute a quorum; 32 (b) A majority vote of a committee consisting of two (2) or more indepen- 33 dent directors appointed by majority vote of independent directors present 34 at a meeting of the board of directors, whether or not such independent 35 directors constituted a quorum. 36 (3) None of the following shall by itself cause a director to be consid- 37 ered not independent for purposes of this section: 38 (a) The nomination or election of the director by persons who are defend- 39 ants in the derivative proceeding or against whom action is demanded; 40 (b) The naming of the director as a defendant in the derivative proceed- 41 ing or as a person against whom action is demanded; or 42 (c) The approval by the director of the act being challenged in the 43 derivative proceeding or demand if the act resulted in no personal benefit 44 to the director. 45 (4) If a derivative proceeding is commenced after a determination has 46 been made rejecting a demand by a shareholder, the complaint shall allege with 47 particularity facts establishing either (a) that a majority of the board of 48 directors did not consist of independent directors at the time the determina- 49 tion was made, or (b) that the requirements of subsection (1) of this section 3 1 have not been met. 2 (5) If a majority of the board of directors does not consist of indepen- 3 dent directors at the time the determination is made, the corporation shall 4 have the burden of proving that the requirements of subsection (1) of this 5 section have been met. If a majority of the board of directors consists of 6 independent directors at the time the determination is made, the plaintiff 7 shall have the burden of proving that the requirements of subsection (1) have 8 not been met. 9 (6) The court may appoint a panel of one (1) or more independent persons 10 upon motion by the corporation to make a determination whether the maintenance 11 of the derivative proceeding is in the best interests of the corporation. In 12 such case, the plaintiff shall have the burden of proving that the require- 13 ments of subsection (1) of this section have not been met. 14 SECTION 7. That Part 7, Chapter 1, Title 30, Idaho Code, be, and the same 15 is hereby amended by the addition thereto of a NEW SECTION , to be 16 known and designated as Section 30-1-745, Idaho Code, and to read as follows: 17 30-1-745. DISCONTINUANCE OR SETTLEMENT. A derivative proceeding may not 18 be discontinued or settled without the court's approval. If the court deter- 19 mines that a proposed discontinuance or settlement will substantially affect 20 the interests of the corporation's shareholders or a class of shareholders, 21 the court shall direct that notice be given to the shareholders affected. 22 SECTION 8. That Part 7, Chapter 1, Title 30, Idaho Code, be, and the same 23 is hereby amended by the addition thereto of a NEW SECTION , to be 24 known and designated as Section 30-1-746, Idaho Code, and to read as follows: 25 30-1-746. PAYMENT OF EXPENSES. On termination of the derivative proceed- 26 ing the court may: 27 (1) Order the corporation to pay the plaintiff's reasonable expenses, 28 including counsel fees, incurred in the proceeding if it finds that the pro- 29 ceeding has resulted in a substantial benefit to the corporation; 30 (2) Order the plaintiff to pay any defendant's reasonable expenses, 31 including counsel fees, incurred in defending the proceeding if it finds that 32 the proceeding was commenced or maintained without reasonable cause or for an 33 improper purpose; or 34 (3) Order a party to pay an opposing party's reasonable expenses, includ- 35 ing counsel fees, incurred because of the filing of a pleading, motion or 36 other paper, if it finds that the pleading, motion or other paper was not well 37 grounded in fact, after reasonable inquiry, or warranted by existing law or a 38 good faith argument for the extension, modification or reversal of existing 39 law and was interposed for an improper purpose, such as to harass or cause 40 unnecessary delay or needless increase in the cost of litigation. 41 SECTION 9. That Part 7, Chapter 1, Title 30, Idaho Code, be, and the same 42 is hereby amended by the addition thereto of a NEW SECTION , to be 43 known and designated as Section 30-1-747, Idaho Code, and to read as follows: 44 30-1-747. APPLICABILITY TO FOREIGN CORPORATIONS. In any derivative pro- 45 ceeding in the right of a foreign corporation, the matters covered by sections 46 30-1-740 through 30-1-746, Idaho Code, shall be governed by the laws of the 47 jurisdiction of incorporation of the foreign corporation except for sections 48 30-1-743, 30-1-745 and 30-1-746, Idaho Code.
STATEMENT OF PURPOSE
RS 07580
This bill will add to the Idaho Business Corporation Act
provisions of the American Bar Association's revised Model
Business Corporation Act regarding derivative actions by
shareholders.
The 1997 Legislature adopted the Idaho Business Corporation Act
which was based on the revised Model Business Corporation Act
("Model Act") developed by the American Bar Association. The
section of the Model Act that provided for derivative actions by
shareholders was omitted from the bill presented to the 1997
Legislature since Idaho Rule of Civil Procedure 23(f) addressed
derivative actions. After the Legislature adopted the Business
Corporation Act, the Section of Business and Securities Laws
approached the Idaho Supreme Court's committee on the Civil
Rules and requested that consideration be given to adopting the
provisions of the Model Act concerning derivative actions. The
Civil Rules Committee reviewed the Model Act provisions and
suggested that the Section seek legislative adoption of the
provisions rather than amending the Idaho Rules of Civil
Procedure. This bill would add to the Idaho Business Corporation
Act the Model Act's provisions on derivative actions.
Derivative actions are cases in which a shareholder files a
lawsuit on behalf of a corporation seeking to enforce a claim by
the corporation. The shareholder must establish that there is a
reasonable basis for the claim and the corporation has refused
to pursue it.
The Model Act codifies a large body of court cases construing
Rule 23(h) (especially regarding procedural issues) and will
assist shareholders and corporate management in understanding
and implementing their rights while decreasing the need to
resort to the courts. Section 30-1-744 provides that a committee
of independent directors may determine in good faith, and after
conducting a reasonable inquiry, whether the maintenance of the
derivative action is in the best interest of the corporation.
This is a safeguard against a shareholder bringing a derivative
action which independent directors have determined to be
wasteful and not in the best interest of the corporation.
FI S CAL NOTE
None.
Contact: Paul Street (208) 385-5414
STATEMENT OF PURPOSE/FISCAB NOTE
H 530