"Demand Refused" vs. "Demand Excused"
Most lawyers are aware that there is a demand requirement attached to shareholder derivative suits. However, the relevent issues in the case will often vary depending on whether or not the demand was "refused" or "excused." Since making a demand prior to filing a derivative suit amounts to a tacit admission that a majority of the board is sufficiently independent and disinterested, the only issues to be examined in a "demand refused" case are the good faith and reasonableness of the board's investigation and response. Lewis on Behalf of Citizens Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215, 222 ( Tenn. Ct. App. 1992). By contrast, the focus in a "demand excused" proceeding (i.e. futility) entails a showing that (1) that the board is interested and not independent and (2) that the challenged transaction is not protected by the business judgment rule. Id. A good overview of the factors that should be considered by the court in determining whether these showings have been made in a "demand excused" case can be found in the Lewis case cited above at 224-25.