1998 Legislation
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HOUSE BILL NO. 530 – Corporations, derivative actions

HOUSE BILL NO. 530

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Daily Data Tracking History



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

Bill Text


H0530


                                                                        
 ||||              LEGISLATURE OF THE STATE OF IDAHO             ||||
Fifty-fourth Legislature                 Second Regular Session - 1998
                                                                        

                             IN 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 / Fiscal Impact


    





                             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