“the declaration and payment of a dividend rests in the discretion of the corporation’s board of directors in the exercise of its business judgment”
How later courts described this case
- “the declaration and payment of a dividend rests in the discretion of the corporation’s board of directors in the exercise of its business judgment”
Written by the judges who cited it.
The opinion
Cite as 2025 Ark. 86
SUPREME COURT OF ARKANSAS
No. CV-22-790
Opinion Delivered: May 22, 2025
LISA CRAIN; CATHEE CRAIN; DISSENTING OPINION FROM
MARILLYN CRAIN BRODY; AND DENIAL OF PETITION FOR
KRISTAN CRAIN SNELL, REVIEW.
DERIVATIVELY ON BEHALF OF
REGIONAL JET CENTER, INC.
APPELLANTS
V.
SHIRLEY CRAIN AND REGIONAL
JET CENTER, INC.
APPELLEES
NICHOLAS J. BRONNI, Associate Justice
Business decisions should be made in boardrooms—not courtrooms. That’s the point
of the business judgment rule. The decision below violates that principle and, in the process,
renders businesses across Arkansas vulnerable to an entirely new class of shareholder-
derivative suits. I’d grant the petition for review; vacate that decision; and affirm the circuit
court’s order.
Start with the basics. The business judgment rule “protect[s] directors from liability
for their decisions” and prevents courts from “interfer[ing] with or second[] guess[ing] their
decisions.” Hall v. Staha, 303 Ark. 673, 678, 800 S.W.2d 396, 399 (1990) (quoting Gries
Sports v. Cleveland Browns Football, 496 N.E.2d 959, 963 (Ohio 1986)). Under that rule,
“[a] board of directors enjoys a presumption of sound business judgment, and its decisions
will not be disturbed if they can be attributed to any rational business purpose.” Sinclair Oil
Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971). That makes sense because, as we explained
in adopting the business judgment rule in Arkansas, “directors are better equipped than the
courts to make business judgments.” Hall, 303 Ark. 673, 678, 800 S.W.2d 396, 399
(quoting Gries Sports, 496 N.E.2d at 963 (Ohio 1986)).
That presumption normally applies when directors decide not to distribute corporate
funds. See Gibbons v. Mahon, 136 U.S. 549, 558 (1890) (distributions are “to be determined
by the directors” and, absent bad faith, their discretion “cannot be controlled by the
courts”); Gabelli & Co. v. Liggett Grp. Inc., 479 A.2d 276, 280 (Del. 1984) (“the declaration
and payment of a dividend rests in the discretion of the corporation’s board of directors in
the exercise of its business judgment”); Right or duty to pay dividend; and liability for wrongful
payment, 109 A.L.R. 1381 (1937). So it’s no surprise that cases involving noncontractual
claims to compel corporate distributions have applied the business judgment rule and denied
those claims. See Hill v. State Farm Mut. Auto. Ins. Co., 83 Cal. Rptr. 3d 651, 662 (Cal. Ct.
App. 2008); Churella v. Pioneer State Mut. Ins. Co., 671 N.W.2d 125 (Mich. App. 2003);
Salley v. Salley, 95-0387 (La. 10/16/95); 661 So. 2d 437, 441; Gabelli, 479 A.2d at 280;
Matter of Reading Co., 711 F.2d 509, 520 (3d Cir. 1983).
The circuit court followed that same approach here, and its decision should have
been affirmed. The court of appeals didn’t do that. Instead, it reversed and remanded for
the circuit court to decide whether the sole director in this case—who had refused to
distribute corporate funds recovered from a derivative suit—was disinterested. That
2
fundamentally misunderstands the business judgment rule.1 To be sure, the protections of
the business judgment rule “can only be claimed by disinterested directors.” Long v.
Lampton, 324 Ark. 511, 522, 922 S.W.2d 692, 699 (1996). But as we’ve previously
explained, a director fails that test only when they “appear on both sides of the transaction”
or “expect to derive any person[al] financial benefit” from a decision “in the sense of self-
dealing.” Id. And the decision to withhold a distribution doesn’t involve a two-sided
transaction or self-dealing. Far from it, there’s no transaction at all; the funds remain with
the corporation. So it’s not at all clear what the circuit court is supposed to do on remand.
Worse still, to justify that approach, the court of appeals rewrote the law of derivative
suits. Such suits are supposed to be about recovering misspent funds for the corporation,
and any recovery is supposed to “accrue[] to the corporation and not to the shareholders,
individually.” Hames v. Cravens, 332 Ark. 437, 442, 966 S.W.2d 244, 247 (1998). Yet the
decision below suggests the opposite—implying that a successful derivative suit changes the
interested-director calculation to such a degree that it enables shareholders to bypass the
corporate form and claim company funds as their own. That approach undermines basic
corporate governance principles and is a dangerous precedent for anyone doing business in
Arkansas. Because that’s not the law, I respectfully dissent.
WOOD, J., concurs.
1
The fact that the concurrence felt “compelled to write” in response to the petition
underscores the law isn’t clear and that the petition should have been granted.
3