16-6a-612. Derivative suits.
(1) Without affecting the right of a member or director to
bring a proceeding against a nonprofit corporation or its directors or
officers, a proceeding may be brought in the right of a nonprofit corporation
to procure a judgment in its favor by a complainant who is:
(a) a voting member; or
(b) a director in a nonprofit corporation that does
not have voting members.
(2) A complainant may not commence or maintain a derivative
proceeding unless the complainant:
(a) is a voting member, or a director in a nonprofit
corporation that does not have voting members, at the time the proceeding is
brought; and
(b) fairly and adequately represents the nonprofit
corporation's interests in enforcing the nonprofit corporation's right.
(3) (a) A complainant may not commence a derivative
proceeding until:
(i) a
written demand is made upon the nonprofit corporation to take suitable action;
and
(ii) 90
days have expired from the date the demand described in Subsection (3)(a)(i) is
made, unless:
(A)
the complainant is notified before the 90-day period expires that the demand is
rejected by the nonprofit corporation; or
(B)
irreparable injury to the nonprofit corporation would result by waiting for the
90-day period's expiration.
(b) A complaint in a derivative proceeding shall be:
(i)
verified; and
(ii)
allege with particularity the demand made to obtain action by the board of
directors.
(c) A derivative proceeding shall comply with the
procedures of Utah Rules of Civil Procedure, Rule 23.1.
(d) The court shall stay any derivative proceeding
until the inquiry is completed and for an additional period as the court
considers appropriate if:
(i) the
nonprofit corporation commences an inquiry into the allegations made in the
demand or complaint; and
(ii) a
person or group described in Subsection (4) is conducting an active review of
the allegations in good faith.
(e) If a nonprofit corporation proposes to dismiss a
derivative proceeding pursuant to Subsection (4)(a), discovery by a complainant
in the derivative proceeding:
(i) is
limited to facts relating to:
(A)
whether the person or group conducting the inquiry is independent and
disinterested;
(B)
the good faith of the inquiry; and
(C)
the reasonableness of the procedures followed by the person or group conducting
the inquiry; and
(ii) may
not extend to any facts or substantive issues with respect to the act,
omission, or other matter that is the subject matter of the derivative
proceeding.
(4) (a) A derivative proceeding shall be dismissed by the
court on motion by the corporation if a person or group specified in Subsection
(4)(b) or (4)(f) determines in good faith, after conducting a reasonable
inquiry upon which the person's or group's conclusions are based, that the
maintenance of the derivative proceeding is not in the best interest of the
nonprofit corporation.
(b) Unless a panel is appointed pursuant to Subsection
(4)(f), the determination in Subsection (4)(a) shall be made by:
(i) a
majority vote of independent directors present at a meeting of the board of
directors, if the independent directors constitute a quorum; or
(ii) a
majority vote of a committee consisting of two or more independent directors
appointed by a majority vote of independent directors present at a meeting of
the board of directors, whether or not the independent directors appointing the
committee constituted a quorum.
(c) None of the following by itself causes a director
to be considered not independent for purposes of this section:
(i) the
nomination or election of the director by persons:
(A)
who are defendants in the derivative proceeding; or
(B)
against whom action is demanded;
(ii) the
naming of the director as:
(A)
a defendant in the derivative proceeding; or
(B)
a person against whom action is demanded; or
(iii) the
approval by the director of the act being challenged in the derivative
proceeding or demand if the act resulted in no personal benefit to the
director.
(d) If a derivative proceeding is commenced after a
determination is made rejecting a demand by a complainant, the complaint shall
allege with particularity facts establishing either:
(i) that a
majority of the board of directors did not consist of independent directors at
the time the determination was made; or
(ii) that
the requirements of Subsection (4)(a) are not met.
(e) (i) If a majority of the board of directors does
not consist of independent directors at the time the determination is made to
reject a demand by a shareholder, the corporation has the burden of proving
that the requirements of Subsection (4)(a) are met.
(ii) If a
majority of the board of directors consists of independent directors at the
time the determination is made to reject a demand by a complainant, the
plaintiff has the burden of proving that the requirements of Subsection (4)(a)
are not met.
(f) (i) The court may appoint a panel of one or more
independent persons upon motion by the corporation to make a determination
whether the maintenance of the derivative proceeding is in the best interest of
the corporation.
(ii) If
the court appoints a panel under Subsection (4)(f)(i), the plaintiff has the
burden of proving that the requirements of Subsection (4)(a) are not met.
(g) A person may appeal an interlocutory order of a
court that grants or denies a motion to dismiss brought pursuant to Subsection
(4)(a).
(5) On termination of a derivative proceeding the court may
order:
(a) the nonprofit corporation to pay the plaintiff's
reasonable expenses, including attorney fees, incurred in the proceeding, if it
finds that the proceeding results in a substantial benefit to the nonprofit
corporation;
(b) the plaintiff to pay a defendant's reasonable
expenses, including attorney fees, incurred in defending the proceeding, if it
finds that the proceeding was commenced or maintained:
(i)
without reasonable cause; or
(ii) for
an improper purpose; or
(c) a party to pay an opposing party's reasonable
expenses, including attorney fees, incurred because of the filing of a
pleading, motion, or other paper, if the court finds that the pleading, motion,
or other paper was:
(i) (A)
not well grounded in fact, after reasonable inquiry; or
(B)
not warranted by existing law or a good faith argument for the extension,
modification, or reversal of existing law; and
(ii)
interposed for an improper purpose, such as to:
(A)
harass;
(B)
cause unnecessary delay; or
(C) cause needless increase in the cost of litigation.
Amended by Chapter 228, 2006 General Session