Burks v. Lasker

441 U.S. 471 (1979)

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Burks v. Lasker

United States Supreme Court
441 U.S. 471 (1979)

Facts

An investment company (the fund) registered under the Investment Company Act (ICA) incurred a loss on commercial paper issued by the Penn Central Transportation Company (Penn Central), a railroad company that later went bankrupt. Shareholders of the fund (the shareholders) (plaintiffs) brought a derivative suit in federal district court alleging that several of the fund’s directors and the fund’s investment advisor breached their fiduciary duties. The shareholders claimed that the adviser had not properly investigated Penn Central’s credit quality and that the directors had not properly overseen the adviser. The disinterested directors of the fund (the directors) (defendants) concluded that the shareholders’ action did not serve the best interests of the fund and the fund’s shareholders, and subsequently obtained a dismissal. The shareholders appealed, and the court of appeals reversed, holding that the ICA precluded the directors from terminating nonfrivolous litigation brought by shareholders against majority directors for breach of their fiduciary duties. The Supreme Court granted certiorari.

Rule of Law

Issue

Holding and Reasoning (Brennan, J.)

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