Lisa Crain; Cathee Crain; Marillyn Crain Brody; And Kristan Crain Snell, Derivatively on Behalf of Regional Jet Center, Inc. v. Shirley Crain and Regional Jet Center, Inc.

2025 Ark. 86

• Court: Supreme Court of Arkansas
• Decided: May 22, 2025
• Status: Published

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.