can someone help me do the IRAC for this topic Zapata Corp. v. Maldonado 430 A.2d 779 (Del. 1981) below is attached the chapter and the entire case.

\f5/3/23, 10:48 AM Shareholders' Lawsuits A shareholder has the right to sue in his own name to prevent or redress a breach of the shareholder's contract. For example, a shareholder may sue to recover dividends declared but not paid or dividends that should have been declared, to enjoin the corporation from committing an ultra vires act, to enforce the shareholder's right of inspection, and to enforce preemptive rights. https://prod.reader-ui.prod.mheducation.com/epub/sn_8f833/data-uuid-8efe95c0609444acad4ed856915cfbba 2/165/3/23, 10:48 AM Shareholders' Lawsuits Shareholder Class Action Suits When several people have been injured similarly by the same persons in similar situations, one of the injured people may sue for the benet of all the people injured. Likewise, if several shareholders have been similarly affected by a wrongful act of another, one of these shareholders may bring a class action on behalf of all the affected shareholders. An appropriate class action under state corporation law would be an action seeking a dividend payment that has been brought by a preferred shareholder for all of the preferred shareholders. Any recovery is prorated to all members of the class. A shareholder who successfully brings a class action is entitled to be reimbursed from the award amount for his reasonable expenses, including attorney fees. If the class action suit is unsuccessful and has no reasonable foundation, the court may order the suing shareholder to pay the defendants' reasonable litigation expenses, including attorney fees. htlpszllprod .readerui . prod . mheducation .com/e pu b/sn_8f833/d aiau uid8efe95c0609444acad4ed85b915cfbba 3/16 5/3/23, 10:48 AM Shareholders' Lawsuits LOG ON http://securities.stanford.edu Stanford Law School maintains the Securities Class Action Clearinghouse. It provides detailed information relating to the prosecution, defense, and settlement of federal class action securities litigation. https://prod.reader-ui.prod.mheducation.com/epub/sn_8f833/data-uuid-8efe95c0609444acad4ed856915cfbba 4/165/3/23, 10:48 AM Shareholders' Lawsuits Shareholders' Derivative Actions Appreciate how shareholders may enforce corporate rights of actions, especially against corporate managers. When a corporation has been harmed by the actions of another person, the right to sue belongs to the corporation, and any damages awarded by a court belong to the corporation. Hence, as a general rule, a shareholder has no right to sue in his own name when someone has harmed the corporation, and he may not recover for himself damages from that person. This is the rule even when the value of the shareholder's investment in the corporation has been impaired. Nonetheless, one or more shareholders are permitted under certain circumstances to bring an action for the benet of the corporation when the directors have failed httpszllprod .readerui . prod . mheducation .com/e pu b/sn_8f833/d atau uid8efe95c0609444acad4ed85b915cfbba 5/16 5/3/23, 10:48 AM Shareholders' Lawsuits to pursue a corporate cause of action. For example, if the corporation has a claim against its chief executive for wrongfully diverting corporate assets to her personal use, the corporation may not sue the chief executive because she controls the board of directors. Clearly, the CEO should not go unpunished. Consequently, corporation law authorizes a shareholder to bring a derivative action (or derivative suit) against the CEO on behalf of the corporation and for its benet. Such a suit may also be used to bring a corporate claim against an outsider. If the derivative action succeeds and damages are awarded, the damages Page \"'20 ordinarily go to the corporate treasury for the benet of the corporation. The suing shareholder is entitled only to reimbursement of his reasonable attorney fees that he incurred in bringing the action. htlpszllprod .readerui . prod . mheducation .com/e pu b/sn_8f833/d atau uid8efe95c0609444acad4ed85b915cfbba 6/16 5/3/23, 10:48 AM Shareholders' Lawsuits Eligible Shareholders Although allowing shareholders to bring derivative suits creates a viable procedure for suing wrongdoing oicers and directors, this procedure is also susceptible to abuse. Strike suits (lawsuits brought to gain out-of-court settlements for the complaining shareholders personally or to earn large attorney fees, rather than to obtain a recovery for the corporation) are not uncommon. To discourage strike suits, the person bringing the action must be a current shareholder who held shares at the time the alleged wrong occurred. In addition, the shareholder must fairly and adequately represent the interests of shareholders similarly situated in enforcing the right of the corporation. One exception to these rules is the double derivative suit, a suit brought by a shareholder of a parent corporation on behalf of a subsidiary corporation owned by the parent. Courts regularly permit double derivative suits. htlpszllprod .readerui . prod . mheducation .com/e pu b/sn_8f833ld atau uid8efe95c0609444acad4ed85b915cfbba 7/16 5/3/23, 10:48 AM Shareholders' Lawsuits Demand on Directors Because a corporation's decision to sue someone is ordinarily made by its managers, a shareholder must rst demand that the board of directors bring the suit. A demand informs the board that the corporation may have a right of action against a person that the board, in its business judgment, may decide to pursue. Therefore, if a demand is made and the board decides to bring the suit, the shareholder may not institute a derivative suit. Ordinarily, a shareholder's failure to make a demand on the board prevents her from bringing a derivative suit. Nonetheless, the shareholder may initiate the suit if she proves that a demand on the board would have been useless or futile. Demand is futile, and therefore excused, if the board is unable to make a disinterested decision regarding whether to sue. Futility may be proved when all or a majority of the directors are interested in the challenged transaction, such as in a suit alleging that the directors issued shares to themselves at below-market prices or committed a crime. If a shareholder makes a demand on the board and it refuses the shareholder's demand to bring a suit, ordinarily the shareholder is not permitted to continue the derivative action. The decision to bring a lawsuit is an ordinary business decision appropriate for a board of directors to make. The business judgment rule, therefore, is available to insulate from court review a board's decision not to bring a suit. Of course, if a shareholder's derivative suit accuses the board of harming the corporation, such as by misappropriating the corporation's assets, the board's refusal will not be protected by the business judgment rule because the board has a conict of interest in its decision to sue. In such a situation, the shareholder may sue the directors despite the board's refusal. htlpszllprod .readerui . prod . mheducation .com/e pu b/sn_8f833/d atau uid8efe95c0609444acad4ed85b915cfbba 8/16 5/3/23, 10:48 AM Shareholders' Lawsuits Shareholder Litigation Committees In an attempt to ensure the application of the business judgment rule in demand refusal and demand futility situations, interested directors have tried to isolate themselves from the decision whether to sue by creating a special committee of the board, called a shareholder or special litigation committee (SLC) (or independent investigation committee) whose purpose is to decide whether to sue. A well-formed SLC should consist of directors who are not defendants in the derivative suit, are not interested in the challenged action, are independent of the defendant directors, and, if possible, were not directors at the time the alleged wrong occurred. Usually, the SLC has independent legal counsel that assists its determination whether to sue. Because the SLC is a committee of the board, its decision may be protected by the business judgment rule. Therefore, an SLC's decision not to sue may prevent a shareholder from suing. Shareholders have challenged the application of the business judgment rule to an SLC's decision to dismiss a shareholder derivative suit against some of the directors. The suing shareholders argue that it is improper for an SLC to dismiss a shareholder derivative suit because there is a structural bias. That is, the SLC members are motivated by a desire to avoid hurting their fellow directors and adversely affecting future working relationships within the board. When demand is not futile, most of the courts that have been faced with this question have upheld the decisions of special litigation committees that comply with the business judgment rule. The courts require that the SLC members be independent of the defendant directors, be disinterested with regard to the subject matter of the suit, make a reasonable investigation into whether to dismiss the suit, and act in good faith. When demand is futile or excused, most courts faced with the decision of an SLC have applied the rule of the Zapata case, which follows. The MBCA has adopted the Zapata rule in all contexts, whether or not an SLC is used. When a majority of directors are not independent, the corporation has the htlpszllprod .readerui . prod . mheducation .com/e pu b/sn_8f833ld atau uid8efe95c0609444acad4ed85b915cfbba 9/16 5/3/23, 10:48 AM Shareholders' Lawsuits burden of proving that the Zapata test has been met: good faith and reasonable investigation by the directors making the decision to dismiss the action and a determination by those directors that the best interests of the corporation are served by dismissal. If, however, a majority of the directors are independent, the shareholders bringing the derivative action have the burden of proving that there was bad faith or no reasonable investigation, or that bringing the action is in the best interest of the corporation. Page 44-21 https://prod.reader-ui.prod.mheducation.com/epub/sn_8f833/data-uuid-8efe95c0609444acad4ed856915cfbba 10/16\f5/3/23, 10:48 AM Shareholders' Lawsuits Zapata Corporation had a share option plan that permitted its executives to purchase Zapata shares at a below-market price. Most of the directors participated in the share option plan. In 1974, the directors voted to advance the share option exercise date in order to reduce the federal income tax liability of the executives who exercised the share options, including the directors. An additional eect, however; was to increase the corporation's federal tax liability. William Maldonado, a Zapata shareholder; believed that the board action was a breach of a duciary duty and that it harmed the corporation. In 1975, he instituted a derivative suit in a Delaware court on behalf of Zapata against all of the directors. He did not make a demand on the directors to sue themselves, alleging that this would be futile because they were all defendants. The derivative suit was still pending in 1979, when four of the defendants were no longer directors. The remaining directors then appointed two new outside directors to the board and created an Independent Investigation Committee consisting solely of the two new directors. The board authorized the committee to make a nal and binding decision regarding whether the derivative suit should be brought on behalfofthe corporation. Following a three-month investigation, the committee concluded that Maldonado's derivative suit should be dismissed as against Zapata's best interests. Zapata asked the Delaware court to dismiss the derivative suit. The court refused, holding that Maldonado possessed an individual right to maintain the derivative action and that the business judgment rule did not apply. Zapata appealed to the Supreme Court of Delaware. httpszllprod .readerui . prod . mheducation .com/e pu b/sn_8f833/d atau uid8efe95c0609444acad4ed85b915cfbba 12/ 1 6 5/3/23, 10:48 AM Shareholders' Lawsuits Quilleu, Justice We nd that the trial court's determination that a shareholder, once demand is made and refused, possesses an independent, individual right to continue a derivative suit for breaches of duciary duty over objection by the corporation, as an absolute rule, is erroneous. Derivative suits enforce corporate rights, and any recovery obtained goes to the corporation. We see no inherent reason why a derivative suit should automatically place in the hands of the litigating shareholder sole control of the corporate right throughout the litigation. Such an inexible rule would recognize the interest of one person or group to the exclusion of all others within the corporate entity. When, if at all, should an authorized board committee be permitted to cause litigation, properly initiated by a derivative stockholder in his own right, to be dismissed? The problem is relatively simple. If, on the one hand, corporations can consistently wrest bona de derivative actions away from well-meaning derivative plaintiffs through the use of the committee mechanism, the derivative suit will lose much, if not all, of its effectiveness as an intracorporate means of policing boards of directors. If, on the other hand, corporations are unable to rid themselves of meritless or harmful litigation and strike suits, the derivative action, created to benet the corporation, will produce the opposite, unintended result. It thus appears desirable to us to nd a balancing point where bona de shareholder power to bring corporate causes of action cannot be unfairly trampled on by the board of directors, but the corporation can rid itself of detrimental litigation. We are not satised that acceptance of the business judgment rationale at this stage of derivative litigation is a proper balancing point. We must be mindful that directors are passing judgment on fellow directors in the same corporation and fellow directors, in this instance, who designated them to htips://prod.readerui.prod.mheducation.com/epub/sn_8f833/daiauuid8efe95c0609444acad4ed85b915cfbba 13/16 5/3/23, 10:48 AM Shareholders' Lawsuits serve both as directors and committee members. The question naturally arises whether a \"there but for the grace of God go I\" empathy might not play a role. And the further question arises whether inquiry as to independence, good faith and reasonable investigation is su'icient safeguard against abuse, perhaps subconscious abuse. We thus steer a middle course between those cases that yield to the independent business judgment of a board committee and this case as determined below, which would yield to unbridled shareholder control. We recognize that the nal substantive judgment whether a particular lawsuit should be maintained requires a balance of many factorsethical, commercial, promotional, public relations, employee relations, scal, as well as legal. We recognize the danger of judicial overreaching but the alternatives seem to us to be outweighed by the fresh view of a judicial outsider. After an objective and thorough investigation of a derivative suit, an independent committee may cause its corporation to le a motion to dismiss the derivative suit. The Court should apply a two-step test to the motion. First, the Court should inquire into the independence and good faith of the committee and the bases supporting its conclusions. The corporation should have the burden of proving independence, good faith, and reasonable investigation, rather than presuming independence, good faith, and reasonableness. If the Court determines either that the committee is not independent or has not shown reasonable bases for its conclusions, or if the Court is not satised for other reasons relating to the process, including but not limited to the good faith of the committee, the Court shall deny the corporation's motion to dismiss the derivative suit. The second step provides the essential key in striking the balance between legitimate corporate claims as expressed in a derivative stockholder suit and a corporation's best interests as expressed by an independent investigating https://prod.readerui.prod.mheducation.com/epub/sn_8f833/datauuid8efe95c0609444acad4ed85b9150fbba 14/16 5/3/23, 10:48 AM Shareholders' Lawsuits committee. The Court should determine, applying its own independent business judgment, whether the motion should be granted. The second step is intended to thwart instances where corporate actions meet the criteria of step one, but the result does not appear to satisfy its spirit, or where corporate actions would simply prematurely terminate a stockholder grievance deserving of further consideration in the corporation's interest. The Court of course must carefully consider and weigh how compelling the corporate interest in dismissal is when faced with a non-frivolous lawsuit. The Court should, when appropriate, give special consideration to matters of law and public policy in addition to the corporation's best interests. The second step shares some of the same spirit and philosophy of the statement of the trial court: \"Under our system of law, courts and not litigants should decide the merits of litigation.\" Judgment reversed in favor of Zapata. Case remanded to the trial court. Page 44-22 https://prod.readerui.prod.mheducation.com/epub/sn_8f833/datauuid8efe95c0609444acad4ed85b915cfbba 15/16 5/3/23, 10:48 AM Shareholders' Lawsuits Litigation Expenses If a shareholder is successful in a derivative suit, she is entitled to a reimbursement of her reasonable litigation expenses out of the corporation's damage award. On the other hand, if the suit is unsuccessful and has been brought without reasonable cause, the shareholder must pay the defendants' expenses, including attorney fees. The purpose of this rule is to deter strike suits by punishing shareholders who litigate in bad faith. Defense of Corporation by Shareholder Occasionally, the ofcers or managers will refuse to defend a suit brought against a corporation. If a shareholder shows that the corporation has a valid defense to the suit and that the refusal or failure of the directors to defend is a breach of their duciary duty to the corporation, the courts will permit the shareholder to defend for the benet of the corporation, its shareholders, and its creditors. htlpszliprod .readerui . prod . mheducation .com/e pu b/sn_8f833/d atau uid8efe95c0609444acad4ed85b915cfbba 16/16