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Harhen v. Brown

Shareholder's derivative claim was subject to dismissal under business judgment rule where disinterested directors rejected demand that company file suit to collect damages for improper acts by corporate lobbyist.

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The full case caption appears at the end of this opinion.

IRELAND, J. The plaintiff, a policyholder of John Hancock Mutual Life Insurance Company (Hancock), made demand on Hancock’s board of directors to commence litigation, alleging that the defendants, certain directors and employees of Hancock, had harmed Hancock by participating in or acquiescing in illegal lobbying of members of the Massachusetts Legislature. The board, a majority of whose members were disinterested, refused the plaintiff’s demand through its committee. [FOOTNOTE 2] The plaintiff then brought an action, claiming that the directors had wrongfully refused her demand and seeking to recover over $4 million from the defendants on Hancock’s behalf. The defendants moved to dismiss the complaint, and a Superior Court judge allowed the defendants’ motion without prejudice on the ground that the plaintiff had failed to plead with particularity that the committee appointed to respond to the plaintiff’s presuit demand was interested; the judge therefore deferred to the business judgment of the committee. The Appeals Court reversed, Harhen v. Brown, 46 Mass. App. Ct. 793, 816 (1999), and we granted the defendants’ application for further appellate review. Because disinterested directors are entitled to the protection of the business judgment rule in deciding whether to take action on a plaintiff’s demand, and because the plaintiff has failed to allege facts of bad faith or that the board failed to investigate her demand, the Superior Court judge correctly allowed the defendants’ motion to dismiss.

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