Auerbach v. Bennett

47 N.Y.2d 619, 419 N.Y.S.2d 920, 393 N.E.2d 994 (1979)

 

RULE:

The business judgment doctrine bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes. 

FACTS:

A specially appointed committee of disinterested directors - acting on behalf of defendant, a board of directors of a corporation - made a decision to terminate a shareholders' derivative action. The plaintiff shareholders filed suit to challenge the decision, and defendant filed motions for summary judgment and to dismiss. The trial court granted defendant's motions, and the intermediate court reversed. 

ISSUE:

Can the decision of the defendant’s committee be subjected to judicial inquiry?

ANSWER:

No.

CONCLUSION:

The Court found that the decision of defendant's committee was beyond judicial inquiry under the business judgment doctrine. The Court acknowledged that it could inquire as to the disinterested independence of the members of that committee and as to the appropriateness and sufficiency of the investigative procedures chosen and pursued by the committee. However, the Court concluded that there was no basis to warrant either inquiry.

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