The First Circuit Court of Appeals Articulates a Stricter Independence Standard for Fund Directors When Evaluating Demand Futility in Shareholder Derivative Cases

January 22, 2013

The U.S. Court of Appeals for the First Circuit, in Unión de Empleados de Muelles de Puerto Rico PRSSA Welfare Plan, v. UBS Financial Services Inc. of Puerto Rico, No. 11-1605, --- F.3d ----, 2013 WL 49818 (1st Cir. Jan. 4, 2013), recently applied a stricter independence standard for fund directors and their business relationships in the context of shareholder derivative litigation against investment advisers. The Court’s ruling may heighten courts’ scrutiny of board directors’ current and prospective business relationships with investment advisers and their affiliates.

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