Seventh Circuit Applies Strong Business Judgment Rule To Reject Assertion Of Demand Futility

In a recent decision in a diversity case, the Seventh Circuit deferred to a state legislature's "strongly pro-management version of the business judgment rule," rejecting a derivative claim filed by shareholders in an Indiana corporation who had failed to make a demand on the corporation's board of directors. In re: Biglari Holdings, Inc. Shareholder Derivative Litigation, No. 15-1828 (Feb. 17, 2016). The case is instructive for Wisconsin practitioners as to the Seventh Circuit's deference to the business judgment rule embodied in many states' corporations statutes. As emphasized in our Supreme Court's decision in Data Key Partners v. Permira Advisers LLC, 2014 WI 86, Wisconsin, too, has a strong business judgment rule, see Wis. Stat. § 180.0828(1). And, like Indiana, Wisconsin looks for guidance to Delaware corporate-governance law when applying it.

In Biglari Holdings, shareholders alleged that the directors approved three transactions in...