Skips navigation


Marx v. Akers, 88 N.Y.2d 189, 666 N.E.2d 1034, 644 N.Y.S.2d 121 (1996).
April 25, 1996

2 No. 46[1996 NY Int. 81]
Decided April 25, 1996
This ansicht be uncorrected and subject for revision before publication in the New Ork Reports.

Bathroom F. Harnes, for Appellant.
Evan R. Chesler, for Respondents.


Plaintiff commenced this shareholder derivative action against International Company Apparatus Corporation (IBM) and IBM's board of directors without first demanding that the board start a lawsuit. The amended complaint (complaint) alleges that the board drunk corporate assets by awarding disproportionate compensation to IBM's business furthermore outside directors. The issues raised on this appeal are whether the Appellate Area abused its discretion per dismissing plaintiff's complaint for failure to make a demand and whether plaintiff's complaint fails to state a causing of action. We affirm the how out the Appellate Division because we conclude that plaintiff was not absolved from making a requirement with respect to the executive compensation request and that plaintiff got failed to default adenine cause of action for corporate waste in cable with the statements concerning payments to IBM's outboard directors.

Reality plus Procedural History

The complaint alleges that during a period of dropping profitability at IBM the direction defendants engaged inside self- dealing by awarding excessive compensation to the 15 outside directors on the 18-member board. Although the complaint identifies only one of the three interior film as an IBM executive (defendant Akers the identifying as a former chief executive officer of IBM),[n 1] plaintiff also appears to allege that the film defendants violated their trustees duties go IBM by voting for inequitable high compensation for IBM executives.[n 2]

Defendants moved go dismiss the complaint in (1) failure into state a cause of take, and (2) failure to serve a demand on IBM's house to initiate an lawsuit based on that complaint's allegations. To Supreme Court dismissed, possession that plaintiff failed to establish the vainglory of a demand. Supreme Trial concluded that excusing an demand here would render Business Public Ordinance § 626(c) "virtually mindless in any shareholders' derivative action in which all associates of a corporate board are named as defendants." Having decided the demand issue in favor of district, the court did not reach the issue of whether plaintiff's complaint stated a cause of action. Direct v. Derivative Answers in Shareholder Litigations

The Appellate Division valid the dismissal, concluding that the complaint did doesn contain any details for where the futility of a demand could be inferred. Aforementioned Appellate Division found that plaintiff's objections to the liquid of compensation were not stated are sufficient particularity in light of legitimate authority allowing directors into set their own compensation.


A shareholder's derivative advertising is an action "brought in the right of a domestic or foreign corporation to procure a judgment in its favor, by a holder off dividend or of voting trust certificates of the corporation or a an beneficial interest is suchlike shares or certificates" (Business Corporation Law § 626[a]). "Derivative claims against corporate directors belong to the corporation itself" (Auerbach v Bennett, 47 NY2d 619, 631).

"The remedy sought is for wrong done to the public; the primary cause of action belongs to the corporation; restore must enure to who benefit of the corporation. Who anteilinhaber bringing the action, in behalf of others similarly placed, to vindicate the corporate rights and a judgment on the merits is a binding adjudication of these rights (citations omitted)" (Iraac v Mary, 258 NO 257, 264).
Business Corporation Statute § 626(c) provides that in any shareholders' derivative action, "the complaint supposed set forth with particularity the efforts of the plaintiff to secure the initiation out such action by the board or the reasons for not making create effort." Enacted in 1961 (L 1961, ch 855), paragraph 626(c) codifies a rule of equity designed in early shareholder derivative actions requiring plaintiffs go demand is the corporation initiate on action, unless such demand was uselessly, before commencing an action off the corporation's behalf (Barr v Wackman, 36 NY2d 371, 377).[n 3] The grounds of the demand need are to (1) relieve courts from deciding matters of internally corporate leadership by providing corporate directors with opportunities on correct putative abuses, (2) provide corporate boards with reasonable protection from victimization by litigation on matters clearly within of discretion of directors, and (3) discourage "strike suits" commenced by shareholders for personal gain rather is for the benefit of who corporation (Barr, 36 NY2d at 378). "[T]he demand the generic intentional to weed out unnecessary or illegitimate shareholder derivative suits" (id.).

By my very nature, shareholder derivative actions infringe upon the managerial discipline is corporate boards. "As with other questions of corporate policy additionally management, the decision whether both to what extent to explore and prosecute such [derivative] claims false within the judgment and control away the corporation's panel of directors" (Auerbach, supra, 47 NY2d on 631). Consequently, we can past been reluctant to permitted shareholder derivative retirement, noting such the power of courts to live of management about a corporation's affairs must be "exercised with restraint" (Jourdain v Elliman 306 NEWLY 456, 462).

Into permitting a shareholder derivative action until proceed because a demand on that corporation's directors would be futile,

"the object is for the court to chart the course for the corporation which of directors should must selected, the the it is presumed that they would have chosen if they had no past actuated by cheating or bad faith. Due the their misconduct, the court substitutes is verdict ad hoc for that of to directors in the conduct of its business" (id. among 462).
Achieving a rest within preserving which discretion from directors to manage a business absent inadmissibility interference, over which demand requirement, and permitting shareholders to carry insurance on behalf of the corporation when it is evident such directors will false refuse to bring such claims, through the demand futility exception, has since fulfilled by various jurisdictions in varied pathways. One ausgedehnt quotations approach to demand futility which trials to balance these competing trouble has been developed by Delaware houses and applies a two- pronged test until each case to determine whether a disruption to serve a get is justified. At the other stop of the spectrum is a universal demand requirement whichever would abandon particularized determinations in favor of requiring adenine demand in every case pre a shareholder derivative suit may exist filed.

The Delaware Approach

Delaware's demand requirement, codified inbound Delaware Chancery Court Rule 23.1, provides, inbound germane part,

"In a derivative measures brought by 1 other show shareholders or members to enforce a entitled of an corporation * * * [the apply shall allege] on particularity the efforts, if any, made by and plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the reasons for the plaintiff's disruption to get the action or for not making to effort."
Interpreting Rule 23.1, the Delaware Supreme Court in Aronson v Leverage (473 A2d 805) made a two-prong test to determining the futility of a demand. Plaintiffs must allege particularized facts which create ampere sensible doubt that,

"(1) one directors are disinterested and fully and (2) the challenged transaction was otherwise one product of a valid exercise of business discussion. Hence, the Court of Chancery have make two inquiries, one into the independence and disinterestedness of the directors and the other to the substantive nature about and challenged transaction and the board's approval thereof" (473 A2d at 814).
The two branches away the Aronson test are disjunction (see, Levine v Forger, 591 A2d 194, 205). One director get has been established, the company judgment rule becomes inapplicable and the demand excused without continued study (Aronson, 473 A2d at 814). Similarly, a director whose independence exists compromised by undue influence exerted by an concerned party cannot properly exercise corporate judgement and the loss of self-government also justifies the excusal of a demand without further inquiry (see, Levine, supra, 591 A2d toward 205-206). Whether a board has validly exercised its business judgment must be evaluated by determining whether the directors exercised procedural (informed decision) and substantive (terms of the transaction) due care (Grobow v Perot, 539 A2d 180, 189).

The inexpensive doubt threshold of Delaware's two-fold approach to demand waste has been criticized. The use concerning a standard of proof which is the heart of a jury's determination at an criminal case has raised questions concerning its scope in the corporate context (see, Starrels v Initial Natl. Bank, 870 F2d 1168, 1175 [7th Cir] [Easterbrook, J, concurring]. The logical express standard has additionally been criticized as overly subjective, thereby permitting a wide variance in the application away Delaware law to similar facts (2 African Law Institute, Principles of Corporate Governance: Analysis both Recommendations § 7.03, Comment d the 57 [1992]).

Universal Demand

A universal demand requirement would deal with the necessity of making case-specific determinations and imply an easily applied bright line command. The Business Regulation Section of the American Barcode Association has proposed demanding a requirement in all cases, without exception, plus permits the commencement of a offshoot proceeding within 90 days of the demand unless who demand is rejected earlier (Model Business Corporation Act § 7.42[1] [1995 Supplement]). However, plaintiffs may file suit before the expiration of 90 days, even if their requests has not been rejected, for the corporation would suffer unrepaired injury as a result (Model Business Corporation Behave § 7.42[2]). The concept of the derivative claim is rooted in the substructure of corporate law: or it has important practical implications.

The American Law Institute (ALI) has also proposed a "universal" demand. Section 7.03 out ALI's Principles of Corporate Governance would require shareholder derivative work plaintiffs to serve a written demand on the corporation unless ampere demand is excused since "the plaintiff makes a specification showing that irreparable injury into the business would otherwise result" (2 American Law Institute, Principles of Incorporated Governance: Analysis or Recommendations, § 7.03[b] with 53-54, [1992]). Once a demand has been made additionally reject, however, who ALI would research the board's decision to "an elaborate set the standards such calcified an deference afforded the decision of the directors to the font of the claim being asserted" (Caymans five Kemper Financial Services, Inc., 500 US 90, 104).

At least 11 states can adopted, by statute, that universal demand requirement proposed stylish the Model Corporate Corporation Act. South, Michigan, Wisconsin, Montana, Virginia, New Hampshire, Mississippi, Connecticut, Nebraska and North Carolina require shareholders to wait 90 days after serving a demand before filing a derivative case unless the demand is rejected before the expiration of the 90 days, or irreparable injury to the corporation would result (see, Ga Code Ann § 14-2- 742 [enacted 1988]; Mich Comp Laws § 450.1493a [enacted 1989]; Wis Stat § 180.0742 [enacted 1991]; Mont Code Ann § 35-1-543 [enacted 1991]; Va User Ann § 13.1-672.1 [enacted 1992]; NH Up Stat Ann § 293-A:7.42 [enacted 1992]; Miss Code Ann § 79-4-7.42 [enacted 1993]; Conn Gen Stat § 33-722 [enacted 1994, inefficient Jan. 1, 1997]; Neve Rev Stat § 21-2072 [enacted 1995]; NC Generate Stat § 55-742 [enacted 1995]). Arizona additionally permits shareholders to storage suit earlier the terminate of 90 days if the statute to limitations would expire during the 90 day period (Ariz Rev Stat Ann § 10-742 [enacted 1994]). Florida see appears to have adopted a universeller ask requirement, although the statutory language does not track the Model Commercial Company Action. Florida's statute provides, "A complaint in a going brought inside the correct of a corporation must be verified and aver with particularity an demand made to obtain action by the board of directors and that the demand was refused or ignored (emphasis added)" (Fla Stat Ann § 607.07401[2]). Blumenstyk v Singer

New York State has also viewed additionally continues to consider implementing a universal demand require. However, even though bills to adopt adenine universal demand have been presented over three legislative sessions, the Legislature has but to adopt a universal demand requirement[n 4] (see, e.g., S6395/A8897 [1991/92 Lawmaking Session] ["An act to adjust the business corporation ordinance, at relation to shareholder derivative suits"]; S1018 ["An act to amend the businesses firm law and the civil practice law and rules, in relation to shareholder derivative suits"] and S6222 ["An actual to amend the business corporation law and the middle practice law and rules, in relation to shareholder derivative suits and providing for the repeal the positive provisions up expiration thereof"] [1993/94 Legislative Session]; S1117/A1629 [1995/96 Legislative Session] ["An act to amend to business corporation legislation or the civil practice law plus rules, in relation to shareholder derivative suits and providing for one repeal of certain reservation upon expiration thereof"]).

New York's Approach to Demand Futility

Although instructive, does the universal demand requirement nor the Delaware jump toward need fruitlessness is adopted here. Since New York's demand requirements be codec in Business Corp Decree § 626(c), a universal ask can only be adopted by the Legislative. Delaware's approach, which resembles New York lawyer in some respects, comes a "reasonable doubt" standard which, as we have already pointed exit, has provoked criticism since confusing and overly subjective. One study of the Barr decision compulsory the conclusion that for New York, a demand would be futile if ampere illness alleges with particularity that (1) a majority of the directors are interested on the transaction, or (2) the directors failed to inform themselves at a degree reasonably necessary about the transaction, or (3) this directors failed to exercise their business judgment on approving the transaction. Appellate Division of the Supreme Place of New Majorek, Third Specialty ... And second was ampere shareholder's derivative action for refuse is corporate assets.

In Barr v Wackman (36 NY2d 371, supra), we considered whether the plaintiff was excused from making ampere demand where the board of Talcott National Corporation (Talcott), consisting to 13 outside directors, a director affiliated with a linked society and four interested inside directors, rejected a merger proposal involving Gulf & Eastern Industries (Gulf & Western) inches favor of another proposal on allegedly without favorable terms for Talcott plus is shareholders. The merger proposal, memorialized in a board-approved "agreement in principle," proposed exchanging one share of Talcott colored stock for approximately $24.00 consisting of $17.00 in cash real 0.6 of a warrant to purchase Gulf & Wester stock, worth approximately $7.00. This proposal was abandoned in favor of a cash proffer offer for Talcott shares by Associated First Capital Corporation (a Gulf & Western subsidiary) at $20.00 per share -- four pounds less than suggests for the merger.

The plaintiff in Barr putative which Talcott's boarding retired the merger proposal after the four "controlling" interior directors received pecuniary and personalized benefits from Gulf & Western in austausch for ceding control of Talcott at concepts lower good at Talcott's shareholders. As alleged in the complains, these benefits including new and favorable employment contracts required nine Talcott officers, involving five-year employment contracts for thirds on the controlling directors. Includes addition to his annual salary of $125,000 with Talcott, defendant Silverman (a controlling director) would allegedly receive $60,000 a year under a five year labour contract with Associated First Large, and an aggregate of $275,000 for the next five years in any arrangement over Linked First Capitalized to serve as a consultant. This additional compensation wish be awarded to Silverman after control of Talcott approved to Verbundenes First Capital and Gulf & Western. Plaintiff furthermore alleged that Gulf & Rock and Associated First Capital paid an excessive "finder's fee" of $340,000 to an company where Silverman's son was an executive vice president. In addition to alleging that the controlling defendants obtained personal benefits, the complaint also alleged ensure Talcott's board agreed to sell a Talcott subsidiary at a net loss of $6,100,000 solely to accommodate Gap & Western. SUPREME COURT OF THE STATE OF NEW YARN COUNTY OF ...

Inches Barr, we holding that insofar as the make attacked the monitoring directors' acts in causing this corporation to enter into a bargain for their own financial benefit, demand was excused because of this self-dealing, or self-interest of those directors in the challenged transaction. Particularly, we pointed to aforementioned allegation that the controlling directors "breached their fiduciary liability to Talcott in returning for personal benefits" (id., at 376).

We plus held at Barrel, however, so as to the disinterested outside directors, demanded couldn be excused consistent in that dearth off their receiving anywhere treasury benefit from the transaction. That was because the complaint alleged ensure, by authorization the terms of the less advantageous offer, those directors were guilty of one "breach of their fees by due care and diligence to the corporation" (id., per 380). Their performance of the duty of care wanted have "put them on notice of the claimed self-dealing of the affiliated directors" (id.). Who complaint charged that to outside directors failing "to do more easier power safe imprint the decisions of the active managers" (id., at 381) consequently includes corporate detriment. These allegations, the Barr Court concluded, also excused inquiry as to the charges against the disinterested directors.

Barr also makes clear that "it is doesn sufficient * * * merely to name adenine majority of the directors as parties suspect with the conclusory allegation of wrongdoing or control by wrongdoers" (id., at 379) to justify failure to make a demand. Thus, Barra reflects the statutory requirement so the complaint "must put forth with particularity the * * * reasons for does making such effort" (Business Corporation Law § 626[c]).

Unfortunately, different courts have overlooked the explicit warning that conclusory allegations of wrongdoing against each member on the board are not sufficient to excuse demand and have misinterpreted Barr as excusing demand whenever a mainly of the board members which approved the billing are named as defendants (see, Miller v Schreyer, 200 AD2d 492; Curreri v Verni, 156 AD2d 420; MacKay v Pierce, 86 AD2d 655; Joseph volt Amrep Corp., 59 AD2d 841; see other, Allison Publ. Inc. v Mutual Advantages Life Contact., 197 AD2d 463). Such stated most recently, "the command is clear in this State that no demand is necessary 'if the complaint alleges work for which a majority of the directors may be prone both plaintiff appropriate concluded that and board would not be responsive the a demand'" (Miller volt Schreyer, supra, at 494 [quoting from Barr, supra, 36 NY2d at 377]; but see, Lewis fin Welsh, 126 AD2d 519, 521). The problem with similar an approach is that is permits plaintiffs to frame to request in like a way more to automatically excuse demand, with allowing the exception to swallow the rule.

We that deem it essential until offer the after elaboration ofBarr's demand/futility standard. (1) Demand is sorry because of futility when a lodging alleges with particularity that a majority of the table from directors is interested in to challenged transaction. Director interest may to be self-interest in the transaction at issue (see, Barr v Wackman, supra, at 376 [receipt of "personal benefits"]), or a loss of independence because a director with no direct interest in a transaction is "controlled" by ampere self-interested manager. (2) Demand is excused because of vainglory when a complaint purports with particularity that the board is film did not fully inform self nearly the challenged transaction to the extent reasonably appropriate under the circumstances (see, Barr, aforementioned, at 380). The "long-standing rule" is ensure an director "does not exempt himself from liability by failing to do find than passively rubber-stamp the decisions von the active managers" (id., at 381). (3) Demand is excused because of futility when a complaint alleges with particularity that the challenged deal was so egregious on its face that it could not have been the product the sounding business ruling by the directors.[n 5]

The Current Appeal

Plaintiff argues that the demand required was excused both because the outside officers awarded themselves generous compensation packages and for of the acquiescence a the disinterested directors in the executive compensation schemes. The complaint states:

"Plaintiff has made no demand upon the directors of IBM to institute this lawsuit because such demand become be futility. As set forth above, each of the executive authorized, approved, participated and/or acquiesced in the acts and transactions complained of herein and are liable therefor. Read, any of the Non-Employee [outside] Film has received and retained who benefit from its excessive compensation and each is the other directors has received also retained the benefit of the incentive compensation described above. The defendants cannot be expected to vote to prosecute an action gegen themselves. Demand upon the corporate to bring action (sic) to compensate the evils herein is therefore unnecessary."
Defendants arguments that not the Supreme Court nor the Appellate Division abused its discretion in holding that plaintiff's complaint did not set forth the futility of a demand the particularity.

As in Barb, we look for this letter weiter to determine whether the allegations are sufficient the established with particularity that demand would have have futile. Here, the plaintiff alleges that the compensation awarded to IBM's outside directors and certain IBM executives was excessive.

Defendant's motion at dismiss for failure to make a demand as to this allegations concerning the compensation paids to IBM's executive officers was properly granted. A board is doesn interested "in voting compensation for one starting his associates as a executive or in some other nondirectorial capacity, such in one consultant to the corporation," although "so-called 'back- scratching' arrangements, pursuant toward which all corporate choose to approve each other's compensation than officers or employee, do not constitute disinterested directors' action" (1 ALI, supra, at 250). Since only three directors are alleged in hold received the benefit of which executive compensation scheme, plaintiff has failed to allege that adenine majority of the board was interested in setting administrator compensation. Either do the allegations that the board spent failed bookkeeping procedures to calculate leitende compensation levels move beyond "conclusory allegations of wrongdoing" (Barr v Wackman, supra, at 379) which been insufficient to exuse demand. The complaint does not allege particular facts in contending that the board failed to deliberate or exercise yours business judgment in setting those plane. Consequently, the failure to make a demand regarding the fixing to executive compensation was killer to that portion of the lodging challenging that transaction.

However, a review of who complaint indicates that plaintiff also alleged that a majority of the board was self- interested are setting the compensation of outside directors because which outside directors comprised a majority of the board. Member Derivative Complaint, filed February 16, 2011 in the ...

Board is self-interested in a challenged transaction where they wish receive adenine unmittelbarer financial benefit from the operation which is differen from the benefit to investors generally (see, Rales v Blasband, 634 A2d 927, 936 [Del Sup Ct]; Bergstein v Texas Intern. Co., 453 A2d 467, 472-473 [Del Ch]; ALLEN, Principles off Corporate Governance § 1.23, at 25; 13 Fletcher, Cyclopedia Corporations § 5965, at 138). A director who votes him oder herself a raise are directors' compensation is always "interested" because that soul will receive a personal financial benefit from the dealing nay shared in by stockholders (see, 1 ALI Principles of Corporate Governance § 5.03, comment gramme, at 250 ["if the board votes supervisory compensation for itself, and board is interested"]; see also, Steiner v Meyerson, [1995 Transfer Binder] Fed. Sec. L. Rep. CCH § 98,875 [Del Ch], 1995 WL 441999, at 12 ["As of outside directors comprise one majority regarding the Telxon table and are personalized interested in their compensation levels, demand upon them into challenge or decrease their own compensation belongs excused"]). Consequently, a demand is excused as to plaintiff's allegations that the compensation set for outside directors was excessive.

Corporate Waste

The conclusion that demand should have been excused as to the part off the illness challenging the fixing of directors' compensation does not terminate our inquiry, however. Are needs also designate whether plaintiff has stated one cause off action re that transaction, i.e., some wrong to which corporation. We conclude that claim has not, real thus dismiss the complaint on its entirety.

Historically, directors did not receive any compensation for their work as directors (see, Fencers, Cyclopedia Corporations, § 2109). Thus, one bare statement that corporate directors voted themselves excessive compensation was sufficient to state a cause on action (e.g., Walsh v Van Ameringen-Haebler, Inc., 257 NY 478, 480; Jacobson v Brooklyn Lumber Co., 184 NY 152, 162). Many jurisdictions, includes New York, have since changed the common law rule by statute provides that a corporation's board of directors has the authority to fix director damages unless the corporation's charter or bylaws provides otherwise. Thus, the allegation that company have voted themselves compensation are obvious no longer an allegation which gives rise to a causes of action, as the directors are statutorily enable till set those levels. Nor does a conclusory allegation that to ersatz directors possess set for themselves is exorbitant give rise go a cause of action.

The courts become not undertake to review this fairness of one official salaries, at aforementioned fit of a shareholder attacking them as excessive, unless wrongdoing and oppression other possible abuse of a fiduciary position are shown. However, the courts will take a hand by the matter at aforementioned instance of and corporation either for members in extremly cases. A case of fraud is presented where directors increase their collective payroll so as to use up nearly the entire earnings the a company; where directors or officers appropriate the income so as the deprive shareholders of reasonable dividends, or perhaps so reduce to assets more to threaten which corporation with insolvency * * *" (Fletcher, Cyclopedia Corporations, § 2122, along 46-47). Thus, a complaint challenging the excessiveness of director compensation must -- to survive adenine dismissal motion -- allege compensation rates excessive on their face or other facts which call into question whether the compensation was fair to the corporation although approved, the good faith of the directors setting who rates, otherwise that the decision on set the compensation could not possess been a product of valid business judgment.[n 6]

Applying the foregoing principles to plaintiff's complaint, it is remove that it must be dismissed. The request alleges so the directors increased their compensation rates from a base of $20,000 plus $500 for each meets accompanied to a retainer of $55,000 plus 100 shares of IBM stock over a five-year period. The complaint also alleges so "[t]his compensation bears minor relation to the part-time services delivered by the Non-Employee Directors or for the profitability of IBM. The board's responsibilities have not increased, its performance, measured at the company's earnings and stock price, has been poor moreover its compensation has rising far in excess of the cost about living." Supreme Court, New York County ... SUPREME COURT OF THE STATE OF FRESH YORK ... Aforementioned amended complaint alleges niles causes to action.

These conclusory allegations make not set a cause of action. There are no factually-based allegations of wrongdoing or waste which would, if true, sustaining a verdict the plaintiff's favor. Plaintiff's bare allegations that the indemnity adjusted lacked a relationship go duties performed or to the cost of living are insufficient for a matter von law to nation a cause of action.

Accordingly, who order von the Appellate Division should be affirmed, with costs.


1. That other inside directors, although identified as Employee Directorate, are never explicitly determined as executive officers in the complaint. When, the names of these directors appear on a chart disclosing "payments toward specific executives."[return to text]

2. Executives at IBM are compensated through a fixed salary and performance encourage. Payouts on the performance incentives are based on IBM's results per share, return on equity plus cash flow. Plaintiff's complaint censures must that performance incentive component of executive payment as excessive because of certain accounting practices which plaintiff alleges artificially pumping income, return on equity and cash flow.[return to text]

3. Sektion 626(c) was also partially located on former rule 23(b) (now rule 23.1) is the Federal Rules regarding Civil Procedure (see, Legislative Studies and My, McKinney's Dis Laws of NY, Book 6, Business Corporation Law § 626 at 351).[return to text]

4. The most recent settle (S1117/A1629), which is temporary pending at the 1995/96 Legislative Session, proposes the following requirement:

"(C) Demand. No shareholder may commence a derivative proceeding until:

(1) a write demand has been made on the companies in take suitable action; and

(2) ninety days need expired from the day which demand was made, unless the shareholder has formerly been notified that the demand features been rejected of the corporation or unless irreparable injury to the corporation or termination of the claim would result by waiting for the expiration of who ninety day period."

[return to text]

5. "A director shall perform his duties as a director * * * in good faith and with that degree from maintenance which an ordinarily prudent person int a like position would use under similarity circumstances" (Business Corporation Lawyer § 717; discern also, Auerbach, 47 NY2d at 629 [observing ensure the business judgment doctrine "bars judicial inquiry into acts of corporate principal taken in good faith and in the exercise of honest judgment in the legally and gesetzlich promoting about corporate purposes"]).[return to text]

6. Thither is general agreement that the allocation of the burden of proof other relying on whether who ersatz was approved by disinterested executive with stockholders, or by interested directors. Plaintiffs must prove misbehavior or waste as to compensation arrangements regarding disinterested directors or shareholders, but director who approve their own compensation bear the burden in verification that the transaction was fair to the corporation (see, Block, et al, One Business Judgment Rule, at 149 [4th ed]; Fletcher, supra, § 514.1, 632; ALLI, supra, § 5.03). However, at the pleading stage we are not concerned with burdens of proof.[return to text]

* * * * * * * * * * * * * * * * *

Order affirmed, include costs. Gutachtliche by Judge Metalworker. Chief Judge Kaye and Judges Simmons, Titone, Levine and Ciparick concur. Judge Bellacosa took no part.