## Facts

- Guidant Corporation, an Indiana corporation, developed cardiovascular medical products through subsidiaries, including Endovascular Technologies, Inc.
- Endovascular designed the Ancure Endograft System to treat abdominal aortic aneurysms and obtained FDA approval for U.S. commercial sale in 1999.
- Federal scrutiny later identified manufacturing and regulatory-compliance problems tied to the device, including defects, inadequate complaint handling and reporting, insufficient corrective actions, and FDA-regulatory violations.
- In June 2003, Guidant pleaded guilty to federal felony charges for making false statements to a federal agency and shipping misbranded medical devices in interstate commerce, and agreed to pay significant criminal and civil penalties.
- Following the plea and related events, multiple Guidant shareholders filed shareholder derivative actions on Guidant’s behalf against members of Guidant’s board of directors, alleging breaches of fiduciary duty, abuse of control, gross mismanagement, and waste of corporate assets.
- The derivative actions were consolidated in the United States District Court for the Southern District of Indiana, with a consolidated complaint filed in December 2003.
- The directors moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the plaintiffs failed to make a written pre-suit demand on the board as required by Indiana’s derivative-suit statute.
- Plaintiffs contended that demand should be excused because it would have been futile given the directors’ alleged involvement in, or exposure arising from, the challenged conduct.
- The federal district court certified to the Indiana Supreme Court a question asking whether Indiana Code § 23-1-32-2 imposes a universal written-demand requirement (except where delay would cause irreparable injury) or instead allows demand to be excused as futile, and what standard governs that futility analysis for a public corporation.

## Issues

1. Under Indiana Code § 23-1-32-2 and the Indiana Business Corporation Law, must a shareholder make a written demand before filing a derivative suit unless delay would cause irreparable injury, or may demand be excused as futile?
2. If demand futility remains available, by what standard should a court evaluate a shareholder’s decision not to make demand on a public corporation’s board before filing a derivative action?

## Decision

- The Indiana Supreme Court held that the Indiana Business Corporation Law retains a demand-futility exception; the statute did not eliminate futility and replace it with universal demand.
- The court held that, even though futility remains, its range is substantially limited because Indiana’s statutory scheme authorizes use of disinterested directors or committees to consider whether the corporation should pursue claims.
- The court answered the certified question and returned the matter to the federal district court to apply Indiana’s clarified demand/futility framework to the motion to dismiss.

## Legal Principles

- Indiana’s derivative-suit statute generally requires a shareholder to make a written demand on the corporation’s board before filing suit; a shareholder must plead a legally recognized reason for not making demand.
- Indiana law continues to recognize that demand may be excused when demand would be futile, but the Indiana Business Corporation Law confines when that excuse will apply.
- The availability of statutorily authorized disinterested directors or committees to evaluate whether litigation is in the corporation’s best interests narrows traditional arguments that demand is excused merely because directors face potential liability or conflicts.
- When a corporation uses a properly constituted disinterested decisionmaker to consider a demand or the desirability of pursuing corporate claims, courts give substantial weight to that decision, absent well-pleaded facts showing defects such as lack of disinterest, lack of independence, or an inadequate inquiry.
- The Indiana framework reflects the principle that management of corporate affairs, including decisions about corporate litigation, ordinarily rests with the board (or an independent body the statute permits the corporation to use), not with individual shareholders.

## Conclusion

In re Guidant Shareholders Derivative Litigation holds that Indiana did not adopt universal demand for derivative suits: demand futility still exists under Indiana Code § 23-1-32-2, but it operates in a much smaller set of cases because Indiana’s Business Corporation Law allows disinterested directors or committees to assess corporate claims and decide whether pursuing litigation serves the corporation’s interests, with courts generally deferring to a proper independent process.


In re Guidant Shareholders Derivative Litigation, 841 N.E.2d 571 (2006)