Corporations - Stockholders: Intervention in Settlement
Dale Beck Furnish
Arizona State University (ASU) - Sandra Day O'Connor College of Law
Iowa Law Review, Vol. 49, pp. 581-590, 1964
This article discusses System Meat Co. v. Stewart,122 N.W.2d 1 (Neb. 1963), where the Nebraska Supreme Court held that stockholders may intervene in settlement of corporate litigation where gross negligence, fraud, or flagrant abuse of discretion is apparently present While most jurisdictions which have faced the question view settlements from the same standpoint as they would any other corporate operation and hold that the business judgment of the board of directors cannot be questioned, the instant case is an indication that majority jurisdictions will review the compromise of corporate suits under the same general rule they would apply to the review of other business judgment decisions-that of noninterference in corporate affairs and judgment. This article concludes that the Nebraska Supreme Court has established a well reasoned rule by holding that intervention should be allowed where the circumstances surrounding the stipulation for settlement might tend to indicate the possibility of bad faith. By emphasizing the portentous circumstances and the damaging allegations in the petitioners' affidavit, the Nebraska court has gone to the gravamen of the case. It is such a situation as this, where the settlement was fair on its face, that a majority jurisdiction might deny intervention and rely solely on the compromise agreement as sufficient evidence of good faith and adequate representation. However, intervention under the Nebraska rule can be used to question good faith and adequate representation without considering the common sense and business judgment involved in the agreement. Such a ruling does not destroy the disparity between Nebraska's majority approach and the approach practiced by the minority jurisdictions. The Nebraska court will not exercise their own business judgment in reviewing corporate settlements as a result of this decision. It should, however, be more willing to allow intervention where the good faith of the litigants is in question.
Number of Pages in PDF File: 10
Keywords: System Meat Co. v. Stewart, Corporate Law, Stockholder Interveners
Date posted: July 2, 2009
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