Boland v. Boland

These appeals involve two lawsuits, which include a derivative claim and a direct shareholder action, both arising from a series of stock transactions in a family business owned primarily by eight siblings. Out of those siblings, three brothers served as directors and officers of two family corporations, while the other five siblings were not actively involved in their management. After the death of one of the sisters, the corporations attempted to repurchase her stock pursuant to the terms of a Stock Purchase Agreement. The sister’s estate refused on the grounds that the Agreement grossly undervalued the estate’s shares. The corporations filed a declaratory judgment action, seeking enforcement of the Stock Purchase Agreement, and named the other, non-director siblings as defendants and interested parties.

Meanwhile, the non-director siblings had learned of an earlier stock transaction in which the three directors had acquired additional corporate stock for themselves. Aggrieved by this transaction, two of the non-director siblings sent a demand for litigation to the corporation, and shortly thereafter filed a derivative action in the Circuit Court for *309Montgomery County, alleging self-dealing and a breach of fiduciary duty.1 They also filed “direct” claims, as cross-claims in the declaratory judgment action, on related grounds to the derivative action.

In response, the corporations appointed a special litigation committee (“SLC”), consisting of two newly hired “independent directors,” to examine the claims. After an extended study, the SLC issued a report concluding that the stock transactions were legitimate and that the Stock Purchase Agreement was enforceable. The Circuit Court, deferring to the judgment of the SLC, granted summary judgment in favor of the corporations on the derivative action. In the declaratory judgment proceeding, the Circuit Court, relying on res judicata, dismissed the cross-claims and granted summary judgment to the corporation.

On appeal in the derivative action, the Court of Special Appeals upheld the Circuit Court’s grant of summary judgment, agreeing that the SLC’s report resolved that matter. The two non-director siblings sought certiorari from this Court, which we granted. See 417 Md. 500, 10 A.3d 1180 (2010). At the same time, we granted certiorari in the declaratory judgment action, which had been pending in the Court of Special Appeals. The questions presented for review in these two cases are as follows, rephrased for brevity and clarity:2

*3101) In the derivative action, did the Circuit Court apply the correct standard of review when it analyzed the report of the Special Litigation Committee under the Business Judgment Rule and awarded summary judgment in favor of the Respondents, thus rejecting Petitioners’ claim?

2) Are the Petitioners’ “direct” claims, brought as cross-claims in the declaratory judgment action, precluded by res judicata or otherwise resolved by the Special Litigation Committee report?

3) In the declaratory judgment action, did the Circuit Court err in holding that the stock purchase agreements were enforceable and granting summary judgment to Respondents?

*311In the derivative action (Circuit Court Case # 2821S8-V, Appellate No. 123), we shall reject the Petitioners’ suggestion that Maryland courts should apply their “independent business judgment” and review the SLC’s substantive conclusions. Instead, we shall adhere to the business judgment rule as applied in Auerbach and limit the judicial investigation of an SLC report to the issues of whether the SLC was independent, acted in good faith based on facts, and followed reasonable procedures. Even under this more limited inquiry, however, we shall reverse the Circuit Court, as the court made an inadequate inquiry into the SLC’s independence and the reasonableness of its procedures.

In the declaratory judgment action, (Circuit Court Case # 273284-V; Appellate No. 123) we shall affirm the Circuit Court’s grant of summary judgment to the Respondents on the contract issue, because we agree that the Stock Purchase Agreement in this case was supported by adequate consideration and was enforceable. We shall, however, reverse the Circuit Court’s grant of summary judgment with regard to Petitioners’ cross-claims (the direct action). The court based its summary judgment solely on the grounds that the Petitioner’s cross-claims were barred by the doctrine of res judicata because of its resolution in the derivative action. As we explain below, the resolution of a derivative claim is not necessarily a factual resolution of the merits of the claim, and the Petitioners stated a separate, individual cause of action regarding allegedly oppressive actions by the majority shareholders.

FACTS AND LEGAL PROCEEDINGS

1. The Boland Family Business

In the early 1960s, Louis Boland Sr., the patriarch of the Boland family, entered into a franchise agreement with the Trane Company to be its exclusive sales agent in the greater Washington, D.C., market. Boland established Boland Trane Associates (“BTA”), to sell and distribute Trane’s heating, ventilation, and air conditioning equipment, and Boland Trane *312Services, Inc. (“BTS”), to handle services and repairs.3 Boland served as the chairman of the board and president of both corporations, and along with his wife, Maureen, owned all the stock in the companies.

During the 19.60s, Boland4 gave stock to each of his eight children: Colleen, Louis Jr., Sean, James, John, Kevin, Michael, and Eileen.5 Later, at Boland’s request, each child signed a Stock Purchase Agreement (“SPA”), which restricted their rights regarding the stocks. Specifically, the SPA required the children to offer the stock to the corporations at book value before selling to anyone else, and provided for a corporate repurchase of the stock upon the death of any of the children at book value plus 25 percent. Mr. Boland died on September 7, 2003. Before his death, Boland had set out his desired succession plan in a “Letter of Instruction.” Pursuant to the terms of that letter, Sean became chairman of the boards and CEO of BTA and BTS, James became president and chief operating officer, and Louis, Jr. became executive vice president and chief marketing officer. The letter also directed Lawrence Cain to become senior vice president and the chief financial officer. At all times relevant in this case, Sean, James, and Louis Jr. served on the boards of BTA and BTS along with Cain.

Under the new management, BTS and BTA continued to be profitable. In 2004, the corporations issued almost $5 million in dividends to the shareholders, and in 2005, the dividends increased to almost $6 million.

*313 2. The Stock Transactions

The dispute centers on a series of stock transactions, the first of which was a corporate repurchase of Mrs. Boland’s stock. After Mr. Boland’s death, Mrs. Boland owned a 20 percent share in BTS. Seeking to reduce her eventual estate for tax purposes, and to secure a more stable source of income, Mrs. Boland negotiated with BTS to exchange her stock in return for the purchase of an annuity. On June 25, 2004, she sold her holdings in BTS back to the corporation, and the corporation purchased her an annuity which provided a monthly payment of $28,544.70 for life.

After the repurchase of Mrs. Boland’s stock, the director siblings designed a series of stock purchases that would give them an increased share in BTA and BTS. First, in January 2005, BTS approved a sale of 75,075 shares to Sean’s son, Sean Jr., and 151,150 shares to James, all at the price of $2.16 per share.6 Then, in April 2005, BTA approved a sale of 282 shares of BTA to Lawrence Cain, 70 shares to Sean Jr., 566 shares to James, and 282 shares to Louis Jr., all at a price of $508 per share.7

After these transactions, the Directors and Sean Jr. all had an increased ownership in the corporations. Sean Jr., who previously owned no stock in either corporation, now held just under 2 percent in each company. James increased his share of BTS by approximately 3 percent, and his share in BTA by 14 percent. Louis Jr. and Lawrence Cain each increased their share in BTA by approximately 7 percent. The boards approved the stock sales, retroactively, on April 4, 2005, at a meeting attended by Sean, James, Louis Jr., and Cain.8

*314The Board’s stated purpose in approving these transactions was to compensate the corporations’ directors and to increase their management share to a level comparable to similar corporations. The Board recognized a “need for management incentives for both short-term financial results as well as long-term growth of shareholder value[,]” and “acknowledged [that] it was most desirable to continue the employment of the [Directors] and adequately compensate them for their efforts and reward them for their accomplishments.” In order to accomplish these goals, “the Board agreed it was critical that the compensation plan include an appropriate ownership interest in the Corporation’s stock.”

The Boards structured the payments for these stocks in a way that required no money up front. Instead, in exchange for the stocks, the recipients gave promissory notes with nine-year terms and a set interest rate. At the rate the corporations were issuing dividends, these newly issued stocks would eventually pay for themselves.9

S. Dispute over the Transactions

The directors’ stock purchases came to the attention of the non-director siblings, specifically John and Kevin, in June 2005.10 From that point, relations between the two factions of siblings quickly deteriorated.11 The straw that broke the *315camel’s back, and brought the whole family into court, was the corporations’ attempt to exercise their rights under the SPA, after the death of Colleen.

Colleen died on June 7, 2006, and the corporations sent notice of their intention to repurchase the stocks on June 16, 2006. The valuation of her stock, pursuant to the stock purchase agreement, was significantly lower than some estimations of its market value. Upset at the low valuation of the stock, Colleen’s personal representative resisted the corporations’ attempts.

On July 19, 2006, the Respondents filed a complaint for declaratory judgment, seeking to enforce the repurchase provisions in Colleen’s SPA, naming all the Boland siblings as defendants/interested parties.

Ten months later, on May 1, 2007, John and Kevin responded on two fronts. First, they filed a cross-claim in the corporation’s declaratory judgment action, alleging breach of fiduciary duty, self-dealing, and oppression from threats to enforce buy-back provisions in the SPAs. This was a “direct” action. Second, after sending the requisite demand for litigation to the corporations, John and Kevin filed a derivative complaint, on behalf of both BTS and BTA, naming Sean, James, Louis, and Lawrence Cain as the defendants.12 Their *316allegations included fraudulent conduct, oppression of minority shareholders, and breaches of the duties of good faith and loyalty, and they requested, inter alia, rescission of the stock transactions, compensatory damages, attorney’s fees, and dissolution of the corporations.

Maryland courts have distinguished between direct and derivative claims by looking at the nature of the right claimed to be violated, and the remedy sought. In Shenker v. Laureate Educ., Inc., 411 Md. 317, 983 A.2d 408 (2009), for example, the shareholders brought claims after the corporation approved a cash-out merger, alleging that the directors “violated the fiduciary duties of candor and maximization of value” resulting in “a lesser value that shareholders received for their shares in the cash-out merger[.]” Id. at 346, 983 A.2d at 425. We held that claim to be direct, as the fiduciary claims were “based on a breach owed directly to the shareholder!],]” and the injury was “suffered solely by the shareholders and not by [the] corporate entity.... A higher or lower price received by shareholders for their shares in the cash-out merger in no way implicated [the corporation’s] interests and causes no harm to the corporation.” Id., 411 Md. at 346-47, 983 A.2d at 425.

More generally, we have recognized the fundamental differences between a direct claim and a derivative claim. The derivative suit involves a corporate right, a distinction underlying many of the derivative action’s peculiar procedures and standards of review. See, e.g., Werbowsky v. Collomb, 362 Md. 581, 600, 766 A.2d 123, 133 (2001) (“The fact that the action is on behalf of the corporation, rather than the shareholder, has significant implications, not the least of which is the extent to which the corporation can control the litigation after it is filed.”); see also Shenker, 411 Md. at 344, 983 A.2d *317at 424 (“In a derivative action, any recovery belongs to the corporation, not the plaintiff shareholder.”); 12B William Meade Fletcher, et al, Cyclopedia of the Law of Private Corporations § 5921 (2009 Rev. Vol.) (“A shareholder may sue as an individual where the act complained of creates not only a cause of action in favor of a corporation but also creates a cause of action in favor of the shareholder as an individual ... and under certain circumstances, even if the shareholders are unable to get relief on behalf of the corporation, their individual wrongs are not without remedy.”) (emphasis added).

One advantage a derivative action has for the shareholder is that the expenses of the litigation, if successful, may be borne by the corporation, not the shareholder: “In direct, as opposed to derivative actions, each side will normally be responsible for its own legal expenses. Costs and expenses of bringing a successful derivative action are usually available for the plaintiff-shareholder, and some jurisdictions may provide by statute for the recovery of attorney’s fees in derivative actions.” Fletcher, supra, at § 5938. In Maryland, recovery of attorney’s fees is permitted under the “common fund” doctrine. See, e.g., Hess Constr. Co. v. Board of Educ., 341 Md. 155, 168, 669 A.2d 1352, 1358 (1996) (observing that the common fund theory, allowing reasonable recovery of fees for a successful plaintiff, is allowed “where a stockholder’s derivative action benefitted all of the shareholders”) (citing Davis v. Gemmell, 73 Md. 530, 21 A. 712 (1891)).13

The “direct” claim alleged by John and Kevin is that the majority shareholders oppressed them and threatened to squeeze them out of the company. In Edenbaum v. *318Schwarcz-Osztreicherne, 165 Md.App. 233, 885 A.2d 365 (2005), Judge Krauser described a similar claim of oppression:

“Oppressive” conduct is not defined by the statute. But, as it is singled out as a separate category of conduct justifying corporate dissolution by Corps. & Ass’ns § 3-413(b)(2), we surmise that it does not necessarily involve “fraudulent” or “illegal” conduct. “Oppressive” conduct has been described by other jurisdictions as:

burdensome, harsh and wrongful conduct; a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members; or a visual departure from the standards of fair dealing, and a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely.

“Oppression,” however, has also been defined by one Maryland commentator as “conduct that substantially defeats the reasonable expectations of a stockholder.” James J. Hanks, Jr. Maryland Corporation Law § 11.7(b) (1990, 2004 Supp.). Or, in the more precise terminology of one of our sister states, “conduct that substantially defeats the ‘reasonable expectations’ held by minority shareholders in committing their capital to the particular enterprise.” (Citations omitted.)

Id. at 255-56, 885 A.2d at 377-78. The “direct” suit, alleging oppression, requested dissolution of the corporations, and any recovery would have run directly to John and Kevin.

The derivative suit, on the other hand, alleged injury to the corporation. At oral argument, the Petitioners asserted that, because of the stock purchases by the directors, the corporation was deprived of assets, that is, corporate treasury stock that it could have sold to third-parties for fair market value, an amount the Petitioners allege was much greater than the price paid by the director siblings.14

*319The two cases were consolidated by the Circuit Court on June 6, 2007.

J. The Special Litigation Committee

The corporations appointed two outside, independent directors to the Special Litigation Committee, at a May 2007 meeting of the Boards of Directors. These new directors had no business relationship with the corporations. Each had significant experience in corporate matters.15 The new directors hired another attorney to serve as the SLC’s independent counsel.16 On October 3, 2007, by motion of the corporation, the Circuit Court stayed the consolidated action to allow the SLC an opportunity to investigate the derivative claim.

The SLC investigated the issues presented in the derivative complaint, as well as an issue it apparently raised on its own: whether John and Kevin were “adequate shareholder representatives.” The Court of Special Appeals summarized the SLC’s investigation as follows:

[T]he SLC’s investigation took five months.... The SLC met with Michael, Eileen, John, Kevin, Cain, Louis, Jr., James, Heise, Sean, Jr., Sean, and counsel for Maureen. The interviews were at least 45 minutes and lasted up to 5 hours, with the longest interviews being with [John and Kevin]. The interviews were conducted separately and with the interviewees signing confidentiality agreements, to promote frankness. The SLC also gave counsel for the appellants and for the corporations the opportunity to submit memoranda stating their differing positions. Counsel for the corporations submitted such a memorandum, while counsel for [John and Kevin] submitted the complaint in the *320derivative action. Pursuant to a request by [an SLC director, John and Kevin’s] attorney met with the SLC to discuss the allegations in the derivative suit. The SLC reviewed and summarized a total of 131 documents in the course of its investigation.

Boland v. Boland, 194 Md.App. 477, 512-13, 5 A.3d 106, 127 (2010).

After this investigation, the SLC concluded that “none of the derivative claims have merit and the actions on behalf of the corporations should be terminated.” The SLC first found that “each individual’s salary is commensurate with his education, experience, position, and’ tenure with the company.” The SLC also approved of the stock sales to the directors, stating as follows:

The enhancement of control is a positive benefit for the corporations. The SLC finds those transactions to be well within the business judgment rule and done in good faith for the benefit of the corporation. See Cummings v. United Artists Theater [Theatre ] Circuit, Inc., 237 Md. 1, 22, 204 A.2d 795 (1964); Mountain Manor Realty, Inc. v. Buccheri, 55 Md.App. 185, 198, 461 A.2d 45, 53 (1983).

But an issue of the stock that has the collateral effect of enhancing the power of incumbent management is not invalid if the transaction has its principal purpose some proper corporate goal.

[Id. at 197,] 461 A.2d at 52 (quoting Heit v. Baird, 567 F.2d 1157, 1161 (1st Cir.1977)).

Further, the price received for those shares is more than in dollars. It rewards and expects services to be performed for the corporation. The law is well settled that a corporation may receive payment in any form that it may lawfully purchase property. To give stock in whole or in part for return for services is certainly well accepted and within the business judgment rule.

The SLC finds that the price paid for the stock was appropriate.

*321Then the SLC moved on to the issue of “adequate representation.” The SLC concluded that John and Kevin were not adequate representatives of the shareholders:

[T]he majority shareholders disagree with [John and Kevin] and it is therefore obvious that they do not adequately represent all of the shareholders. In addition, it is clear that the derivative claims appear to be pursued for reasons other than their merit. [John and Kevin’s] purpose seems to be to gain leverage in their personal efforts to change the provisions of the SPAs or obtain new agreements with terms they desire to further their perception of personal and family purposes in the future ownership and management of the corporations. [For example, Kevin Boland] described] his views and purportedly those of [John] as well that:

There is real resentment that Jimmy has so much power on whether the company ever gets sold. Jimmy has told some of us that it is his dream to someday run the family business. For the younger half of the family, his dream is our nightmare.

These views are directly opposite those of Louis Boland, Sr.[.]

The SLC concluded as follows:

The duty that is owed by the Director defendants is defined in Md.Code Ann., Corps. & Ass’ns, § 2-405.1 to act in: (1) good faith (2) in the best interests of the corporation (3) in a manner that an ordinarily prudent person in like or similar circumstances would exercise. The SLC finds the conduct of the Defendants to have met this standard.

The SLC submitted this report to the Circuit Court on February 1, 2008.

5. The Derivative Case

After the submission for the SLC’s report, the Circuit Court severed the derivative action from the declaratory judgment *322action. In the severed derivative action,17 the corporations moved to dismiss, based on the SLC report, on February 11, 2008. John and Kevin requested the court to review the SLC report under an “entire fairness” standard, while the corporations argued that the business judgment rule should apply.

On September 5, 2008, the Circuit Court denied the motion to dismiss.18 The Circuit Court first stated its standard of review:19

In reviewing the findings and conclusion of the [SLC], the [SLC] is entitled to the benefit of the Business Judgment Rule. If, however, the transaction being evaluated by the Committee is one in which directors are ‘on both sides of the transaction,’ then the Court must apply the “entire fairness standard.”

[T]he factual determinations to be made by the court are (1) were the [SLC] members independent and did they perform their duties in good faith?; (2) did the [SLC] undertake a reasonable investigation of plaintiffs derivative claims?; and (3) are the findings and conclusion of the [SLC] reasonable? (Citations omitted.)

Reviewing the SLC’s procedure under this standard, the Circuit Court concluded that the SLC was independent, performed its duties in good faith, and made a reasonable investigation. Turning to the third step, the court analyzed whether *323the SLC made reasonable findings and conclusions on each individual count. The Circuit Court determined that the SLC’s conclusion on the executive compensation was reasonable.20 Then, however, the court denied the corporations’ motion to dismiss so far as it pertained to the purchase by the corporations of Maureen Boland’s stock, concluding that the SLC did not undertake a reasonable investigation with respect those allegations. The Circuit Court thus granted the corporations’ motion to dismiss “with the exception of the claim against Defendant Cain and the purchase by the corporations of the shares of Maureen Boland stock from her estate.” The corporations filed a motion for reconsideration, arguing that the Circuit Court erred in applying an “entire fairness” test, and that the court should instead adhere to the business judgment rule. Without a hearing, the Circuit Court issued (1) an order granting the motion for reconsideration, and (2) a memorandum opinion granting summary judgment.21 The court applied the business judgment rule, as opposed to an entire fairness test, to the counts which survived the September 5, 2008, order. The court’s analysis, under the business judgment rule, of the subject corporate actions is, in its entirety, as follows:

Compensation of Lawrence J. Cain, Jr.

The finding by this Court that the compensation of Director Cain was not addressed by the SLC is also in error.

*324The compensation of Cain and the other Directors was addressed by the SLC, whose decision must be reviewed under the business judgment standard. The application of the standard is clearly bolstered by the report of the SLC and the compensation of Director Cain is found by this Court to come within the standard. The Motion to Dismiss shall be granted in favor of Cain.

The Propriety of the Stock Purchase and Sale to Interested Directors

There are two stock transactions at the center of the claim contained in the Counter-Claim. In January, 2005 BTS sold James and Sean Jr. authorized but not issued stock. Then in April, 2005, a sale of BTA stock to Cain was authorized. The defendants, John and Kevin, seek a rescission of the stock sale.

The sale of the stock was a part of an overall executive compensation plan. Bender, supra, is cited in support of the exercise of deference to the board’s decisions as to the levels of compensation under the business judgment rule. The sale and grant of stock meets this test. John and Kevin have not alleged fraud or deceit in the Counter-Complaint which requires the examination by the Court of the process, scope, and thoroughness of work performed by the SLC. This aspect was fully discussed in the original Memorandum Opinion. Given the standard of review, this Court concludes that the transactions fall within the Business Judgment Standard and will not be set aside.

(Footnote omitted.)

The Circuit Court thus granted summary judgment on all counts.22

*325 6. The Declaratory Judgment Action

After judgments against the plaintiffs in the derivative action, all that remained in the Circuit Court was the corporations’ action for declaratory judgment, and John and Kevin’s cross-claims and counterclaims, in Case #273284-V.23 In particular, the Circuit Court asked the parties to brief whether resolution of the derivative claim also ended the “direct” dispute:

And what will be interesting to me is the right of individuals to bring an oppression claim when a derivative action is already decided in a case.... So it’s a very intense examination of the pleading and the decisions made thus far ... ? Is it a separate claim or different claim from the derivative claim?

At a hearing on April 16, 2009, the two parties disputed whether the derivative claim could preclude direct claims based on similar factual events and allegations. The corporations argued that John and Kevin’s claims were precluded by res judicata, because of the court’s resolution of similar factual allegations in the derivative matter, stating at a hearing:

[There are] no new allegations at all being raised in the amended counter-claim or in the cross-claim concerning oppression that weren’t already raised. The conduct, the bad conduct on the part of the defendants was examined, it was alleged, it was litigated, it was examined by the [SLC,] *326and the [SLC] came up with some findings and found that there was no merit.

The Court later agreed:

But the point I’m making is that if the [SLC], within the proper context of the operation of [an SLC], did make judgments about whether the board had acted improperly and had oppressed all stockholders, [then] why isn’t that ultimately a res judicata binding decision that I have made by endorsing the SLC?

The Court’s persuaded that the derivative claims have been fairly decided and that opinion speaks for itself and that’s on appeal and I do not intend, as part of this action, to permit any revisiting of those issues.

To that end, the Court ... grant[s] the [Respondents’] motion to dismiss ... the cross-claim with leave to amend.... [John and Kevin] will be permitted to re-file ... [but you] must identify specific oppression of Kevin and John.

... I intend to scrutinize any [additional claims] by John and Kevin, and if I determine that it is in essence a restatement of the derivative claims, it’s going to go out.

The Court concluded at the hearing that res judicata could apply and dismissed all of John and Kevin’s “direct” claims, but it granted them leave to amend their complaints one final time to demonstrate an individual cause of action separate from the derivative claims.

After John and Kevin filed an amended Counter-Claim on May 12, 2009, the court held a hearing on July 30, 2009, to consider whether any could survive res judicata. The court again concluded that John and Kevin had failed to present distinct claims from the derivative action:

I find that there was a final judgment, the claims are virtually identical, the parties are the same ... and there, is adequate relief under the declaratory judgment action so *327that it’s not, dismissal does not then become prejudicial to [John and Kevin], And accordingly the court determines then that the second amended counterclaim and amended cross-claim should be dismissed.

Having dismissed the direct claims of John and Kevin, the court finally turned to the dispute over the enforceability of the Stock Purchase Agreements. After a hearing, the court granted the Respondents’ motion for summary judgment. Finding the SPAs to be “plain and unambiguous[,]” supported by consideration, and still valid despite Louis Sr.’s death, the court ordered Colleen’s estate to abide by the redemption clause.

John and Kevin filed an appeal to the Court of Special Appeals, and while that action was pending we granted a writ of certiorari.

DISCUSSION

I.

The first issue before the Court is the Circuit Court’s grant of summary judgment to the defendants in the derivative action. We begin with a brief discussion of judicial review of derivative actions.

The common law tailored the derivative action to be a “justifiable, but limited, intrusion upon the general authority of the directors to manage the business affairs of the corporation.” Werbowsky, 362 Md. at 602, 766 A.2d at 135. As an exception to the general rule that “the business and affairs of a corporation are managed under the direction of its board of directors[,]” the derivative action is an “extraordinary equitable device to enable shareholders to enforce a corporate right” in certain circumstances. Id. at 598-99, 766 A.2d at 133. “The purpose of the derivative action is to place in the hands of the individual shareholder a means to protect the interests of the corporation from the misfeasance and malfeasance of faithless directors and managers.” Shenker, 411 Md. at 342, 983 A.2d at 423 (quotation marks and citations omitted). Despite the *328role given the shareholder, the “corporation is the real party in interest and ... [t]he substantive claim belongs to the corporation[.]” Werbowsky, 362 Md. at 599-600, 766 A.2d at 133 (quoting 13 William Meade Fletcher, et al, Cyclopedia of the Law of Private Corporations, § 5941.10 (1995 Rev. Vol.)). The derivative suit thus balances the interests of the shareholders with those of the corporation and its directors.

The main levers with which the courts maintain this balance are varying levels of judicial scrutiny of corporate decisions. The default standard is the deferential business judgment rule, which insulates “the business decisions made by the director from judicial review[.]” Shenker, 411 Md. at 344, 983 A.2d at 424. The Delaware Supreme Court, in a popular formulation of the rule, described it as follows:

It is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. Absent an abuse of discretion, that judgment will be respected by the courts. The burden is on the party challenging the decision to establish facts rebutting the presumption.

Aronson v. Lewis, 473 A.2d 805, 812 (Del.1984) (citations omitted), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del.2000); see also Della Ratta v. Larkin, 382 Md. 553, 579, 856 A.2d 643, 659 (2004) (“[T]he business judgment rule requires that the decision maker act in good faith and on an informed basis.”). This standard recognizes that the “conduct of the corporation’s affairs are placed in the hands of the board of directors and if the majority of the board properly exercises its business judgment, the directors are not ordinarily liable.” Devereux v. Berger, 264 Md. 20, 31-32, 284 A.2d 605, 612 (1971) (quoting Parish v. Md. & Va. Milk Producers Ass’n, 250 Md. 24, 74, 242 A.2d 512, 540 (1968)).24

*329In certain circumstances, courts decline to employ this deferential standard, thus ensuring that stockholders are protected from more egregious corporate actions. The protection of the business judgment rule “can be claimed only by ‘disinterested directors whose conduct otherwise meets the tests of business judgment.’ ” Werbowsky, 362 Md. at 609, 766 A.2d at 138 (quoting Aronson, 473 A.2d at 812). “[T]his means that directors can neither appear on both sides of a transaction nor expect to derive any personal financial benefit from it in the sense of self-dealing, as opposed to a benefit which devolves upon the corporation or all stockholders generally.” Id. A shareholder may “show either that the board or committee’s investigation or decision was not conducted independently and in good faith, or that it was not within the realm of sound business judgment.” Bender v. Schwartz, 172 Md.App. 648, 666, 917 A.2d 142, 152 (2007). If the shareholder makes this showing, she may avoid the dangerous terrain of the business judgment rule.

This approach, where courts defer to corporate decisions generally, but inquire into the method, process, and self-interest of the decision makers, applies “to all decisions regarding the corporation’s management.” Shenker, 411 Md. at 344, 983 A.2d at 424 (citing NAACP v. Golding, 342 Md. 663, 673, 679 A.2d 554, 559 (1996)). In a derivative lawsuit, this includes a corporate decision on whether the case should proceed, as “any exercise of the corporate power to institute litigation and the control of any litigation to which the corpo*330ration becomes a party rests with the directors[.]” Werbowsky, 362 Md. at 599, 766 A.2d at 133. Thus, the common law developed a requirement that the derivative plaintiff, at the outset, seek a corporate decision on whether to maintain a lawsuit, a prerequisite known as the “demand requirement.” See Waller v. Waller, 187 Md. 185, 192, 49 A.2d 449, 453 (1946) (observing that a stockholder must “allege