The Los Angeles Machine Company ("LAMC") is a major producer of industrial machinery. In order to save costs, its Board of Directors decides to relocate the factory to a fairly remote area in the Mojave Desert. Because LAMC relies on its skilled labor force, it is reluctant to lay off all of its employees or lose them in the move. At the same time, the prospect of moving from LAMC's urban location to a remote desert area will be unattractive to many of the company's employees.

After a very lengthy and detailed process of study, the Board decides, after a robust board meeting discussion, to build a "company town "surrounding its new factory. Houses are built for employees and sold to them at cost, stores are built to provide a variety of consumer goods at reasonable prices, and a new entertainment complex is constructed, with sports and theater facilities that the Board expects to be used by employees as well as for sports and entertainment events sponsored by the corporation. The "company town" ends up being a large financial loss for the company.

Stockholders of LAMC are unhappy because, among other reasons, feel the plan was a poor use of company revenues and will mean no dividends for them for the next few years. They initiate a shareholder derivative law suit challenging the development of the new company town. Discuss the legal basis for this claim and whether the shareholders will likely win or lose, and why.