Kelsey DeLozier

Document Type

Case Summary

Publication Date

4-2021

Case Synopsis

This is an appeal on a dismissal of a shareholder complaint against individual directors of a corporation and its controlling stockholder for failure to state a claim as a result of not rebutting the business judgment rule. The question considered is whether NRS 78.138(7) supplants the “inherent fairness” standard adopted in Foster v. Arata. The standard set in Foster requires a mere allegation that a director was an interested party in the transaction in order to rebut the business judgment rule as a matter of law and shift the burden to the director to prove the inherent fairness of the transaction. In contrast, NRS 78.138(7) requires that the party rebut the business judgment rule and demonstrate that the alleged breach involved intentional misconduct, fraud, or a knowing violation of the law. The Court restated its ruling in Chur v. Eighth Judicial District Court, that NRS 78.138(7) supplies “the sole avenue to hold directors and officers individually liable for damages arising from official conduct,” and further clarified that Chur and NRS 78.138 control on the present issue, abrogating Foster and Shoen to the extent that they conflict with the statute and Chur. In the instant case, the Court ruled that Guzman failed to rebut the business judgment rule and allege particularized facts demonstrating the requisite breach of fiduciary duty, affirming the district court’s dismissal of the complaint.

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