In re PSE&G Shareholder Litigation, 718 A.2d 254 (N.J. Ch. Div. 1998)

Facts

Plaintiff shareholders demanded that PSE&G commence litigation against their officers and directors alleging mismanagement.  The demand was rejected and Plaintiffs filed suit.

Procedural History

PSE&G moved to dismiss for failure to state a claim.  The Court denied the motion and a motion for summary judgment was filed one year later.

Reasoning/Analysis

The Court found there are numerous procedures used by different jurisdictions in a derivative action.  The Court felt that a concomitant to the universal demand rule would be to require the corporation to justify its refusal of a shareholder’s demand.  Placing the burden of proof on the corporation is both logical and consistent with the responsibility that courts have in this area.  Requiring the shareholders to allege facts places them in a position bordering on impossible.  In determining whether a corporation has met its burden, the court would consider all relevant justifications for management’s determination.

Judgment/Outcome

The Court permitted limited discovery before ruling on the motion for summary judgment.