Business Law Question-Please look at description

Question

Pfizer Inc. paid $2.3 billion to settle civil and criminal charges alleging that it had illegally marketed 13 of its most important drugs. This settlement made history, but not in a good way. It was both the largest criminal fine and the largest settlement of civil health care fraud charges ever paid. Shareholders filed a derivative suit against the Pfizer board and top executives. Defendants responded with a motion to dismiss on the grounds that shareholders had not made demand on the board.

-Explain what is meant by making demand. What choices does a board normally have when demand has been made? Was demand necessary in this case? Please explain your answer.

Answer 1

Where company executives or board members commit fraud and mismanagement, a shareholder may bring a derivative. suit against the board of directors and culpable executives. But there is a legal prerequisite. Before filing the suit, the shareholder must make a written demand (in the form of a letter) on the company describing the wrongdoing specifically demanding redress--how the derivative shareholder wants the company to fix the problem.

In the Pfizer case, and others, the courts held that where the alleged wrongdoing is of "substantial magnitude and duration" and the directors "knowingly or recklessly disregarded illegal activity" a demand would be futile, and the requirement waived. In re Pfizer Inc. Shareholder Derivative Litigation, 722 F. Supp. 2d 453 (S.D.N.Y. 2010)

The Pfizer court held the demand would have been futile. This is a fascinating case blending elements of criminal, civil, and corporations law! https://casetext.com/case/in-re-pfizer-inc-shareholder-derivative-litigation