48-17-401 - Procedure in derivative proceedings. - Tennessee Statutes

48-17-401. Procedure in derivative proceedings.

(a)  A person may not commence a proceeding in the right of a domestic or foreign corporation unless the person was a shareholder of the corporation when the transaction complained of occurred or unless the person became a shareholder through transfer by operation of law from one who was a shareholder at that time.

(b)  A complaint in a proceeding brought in the right of a corporation must be verified and allege with particularity the demand made, if any, to obtain action by the board of directors and either that the demand was refused or ignored or why the person did not make the demand. Whether or not a demand for action was made, if the corporation commences an investigation of the charges made in the demand or complaint, the court may stay any proceeding until the investigation is completed.

(c)  A proceeding commenced under this section may not be discontinued or settled without the court's approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interest of the corporation's shareholders or a class of shareholders, the court shall direct that notice be given the shareholders affected. If notice is so directed to be given, the court may determine which one (1) or more parties to the suit shall bear the expense of giving such notice, in such proportions as the court finds to be reasonable in the circumstances, and the amount of such expense shall be awarded as special costs of the suit and recoverable in the same manner as other taxable costs.

(d)  On termination of the proceeding, the court may order:

     (1)  The corporation to pay the plaintiff's reasonable expenses, including counsel fees, incurred in the proceeding, if the court finds that the proceeding has resulted in a substantial benefit to the corporation;

     (2)  The plaintiff to pay any defendant's reasonable expenses, including counsel fees, incurred in defending the proceeding, if the court finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose; or

     (3)  A party to pay an opposing party's reasonable expenses, including counsel 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 not well grounded in fact, after reasonable inquiry, or warranted by existing law or a good faith argument for the extension, modification or reversal of existing law and was interposed for an improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation.

(e)  For purposes of this section, “shareholder” includes a beneficial owner whose shares are held in a voting trust or held by a nominee on the beneficial owner's behalf.

[Acts 1986, ch. 887, § 7.40; 2008, ch. 726, § 1.]