Opinion ID: 895120
Heading Depth: 2
Heading Rank: 2

Heading: Was This Demand Stated With Particularity?

Text: Article 5.14 is based largely on the Model Business Corporation Act, whose eight sections all appear among the 12 sections of article 5.14. But one of the notable differences between the two is that the Model Act requires only that a presuit demand be in writing, while article 5.14 requires a written demand setting forth with particularity the act, omission, or other matter that is the subject of the claim or challenge and requesting that the corporation take suitable action. Given this deliberate insertion, the demand letter here cannot be what the Legislature had in mind. The only complaint and demand for action listed in this letter was that the Board stop the Hoshizaki merger in light of a superior offer ... at $23 per share. The demand gives no reason why the Hoshikazi offer was inferior other than what one can imply from the $1 difference in price. All other things being equal, shareholders should of course prefer $1 more rather than $1 less. But in comparing competing offers for a merger, all other things are rarely equal. A large number of variables may affect the inherent value of competing offers for corporate stock. A cash offer may prove more or less valuable than an offer of stock currently valued at the same amount. Competing bidders may be more or less capable of funding the offers they tender, or completing the transaction without antitrust or other obstacles. Competitors may attach conditions that make an offer more or less attractive in the short or long run. In a merger like this involving several hundred million dollars, one cannot say whether the $23 offer was superior to the $22 offer without knowing a lot more. A rule requiring that a corporation always accept nominally higher offers, in addition to sometimes harming shareholders, would replace the business judgment that Texas law requires a board of directors to exercise. [33] As a result, a board cannot analyze a shareholder's complaint about a higher competing offer without knowing the basis of that complaint. As this demand said nothing about that, it was not stated with particularity as required by article 5.14. [34] The second sentence of the demand here added that the Board should fully and fairly consider all potential offers and disclose to shareholders all of your analysis for recommending the Hosizaki sale. This bland statement of a corporate board's duties could be sent to any board at any time on any issue. The demand did not suggest how the board had failed to consider other offers, or what information it might be withholding. Thus, it gives no direction about what Lancer's board should have done here. On appeal, Dillingham alleges further details of the Hoshizaki merger that she says show Lancer's board chose this merger because of the benefits it gave them personally rather than the corporation. We agree a derivative suit can serve as one important means of preventing a corporate board from enriching themselves at the shareholders' expense. But the demand letter here said nothing about any of that. We do not attempt today to explore all the ways in which a demand might or might not meet article 5.14's with particularity requirement. Whether a demand is specific enough will depend on the circumstances of the corporation, the board, and the transaction involved in the complaint. But given the size of this corporation and the nature of this transaction, this demand was clearly inadequate.