Shenker v. Laureate Education, Inc.

HARRELL, J. This case is about certain modalities of accountability in a corporate business setting. Petitioners are shareholders 1 of Laureate Education, Inc. (“Laureate”), a successful publicly-held Maryland corporation headquartered in Baltimore. Laureate’s primary business is licensing its educational technology overseas and acquiring management interests in foreign colleges and universities. During 2006 and 2007, Laureate underwent a private acquisition process whereby certain members of Laureate’s Board of Directors, namely, Board Respondents Douglas L. Becker and R. Christopher Hoehn-Saric, and several private equity investors (“Investor Respondents”), 2 purchased Laureate through a cash-out merger transaction. 3 Petitioners challenged the ³²⁷ transaction in the Circuit Court for Baltimore City on the grounds that, during the process of negotiations between the Board and the erstwhile purchasers regarding the price Laureate’s shareholders would receive in the cash-out merger transaction, (1) the Laureate Board of Directors (the “Board Respondents”) 4 breached the fiduciary duties they owed to Petitioners as shareholders, (2) Board Respondents and Investor Respondents conspired to breach those duties, and (3) Board Respondents and Investor Respondents aided and abetted that breach.

Petitioners’ action was dismissed, on Respondents’ motions, by the Circuit Court principally because it was seen as an impermissible direct shareholder suit. The Court of Special Appeals affirmed. We must determine, among other things, whether Board Respondents, in the course of negotiating with the acquiring entity the price that Petitioners would receive for their shares in the cash-out merger transaction, owed fiduciary duties directly to Petitioners as shareholders, thus enabling Petitioners, who claim breach of those duties, to bring a direct action against Board Respondents, rather than pursue a derivative action initiative (or demonstrate the futility of such pursuit) on behalf of the corporation. On direct appeal, the Court of Special Appeals held that § 2 — 405.1 5 of the Corporations and ³²⁸ Associations Article 6 bars all direct shareholder claims and affirmed the Circuit Court’s dismissal of Petitioners’ claims for civil conspiracy and aiding and abetting.

For reasons we shall explain, we reverse in part the judgment of the Court of Special Appeals and hold that, where corporate directors exercise non-managerial duties outside the scope of § 2-405.1(a), such as negotiating the price that shareholders will receive for their shares in a cash-out merger transaction, after the decision to sell the corporation already has been made, they remain liable directly to shareholders for any breach of ³²⁹ those fiduciary duties. We affirm that part of the Court of Special Appeals’s judgment that upheld the Circuit Court’s dismissal of Petitioners’ claims against Investor Respondents for civil conspiracy and aiding and abetting. I. BACKGROUND In June 2006, at a regularly scheduled meeting of Laureate’s Board of Directors, Board Respondent Becker, Laureate’s Chairman and CEO, spoke to the Board about the possibility of exploring a transaction between Laureate and private equity investors that would cause Laureate to “go private.” The Board authorized Becker to investigate the potential valuation of Laureate’s stock in such a transaction. In August 2006, Becker contacted members of the Board’s conflicts committee and requested permission to approach Sterling Capital Partners II, L.P.

(“Sterling Capital”), a private equity firm in which Becker held an interest, regarding the proposed transaction. The committee granted permission. On 8 September 2006, Becker informed the Board that he intended to make an offer to purchase Laureate, at which time the Board created a Special Committee composed of three independent directors, Board Respondents McGuire, Pollock, and Wilson, with the authority to retain independent advisors and make independent assessments of any proposed offers. The Special Committee retained the law firm Pillsbury Winthrop Shaw Pittman LLP as its legal counsel, and Morgan Stanley and Merrill Lynch as its financial advisors.

Three days later, Becker submitted a letter to the Board stating that he and Sterling Capital proposed to acquire Laureate for $55 per share. On 22 September 2006, the Special Committee requested that Becker withdraw his proposal so that an appropriate process or set of procedures could be put into place regarding Becker’s development of proposals and the Special Committee’s evaluation of those proposals. Becker withdrew the first offer the next day and, on 29 September 2006, the Special Committee adopted a set of procedures intended to govern the due diligence process Beck ³³⁰ er and other potential financing sources would be required to follow in order to submit an offer. Becker thereafter submitted a second offer to the Special Committee, on behalf of Investor Respondents (which included Sterling Capital) to purchase Laureate for $60.50 per share.

That price constituted an 11.1 % premium over Laureate’s then most recently traded stock price. The proposal included a 45-day “go shop” provision which allowed Laureate to solicit other offers, but required that Laureate pay Investor Respondents a $55 million termination fee if it reached an agreement with another acquirer during the go-shop period, or $110 million if it reached such an agreement afterwards. Morgan Stanley and Merrill Lynch concluded that the offer was fair financially, although that conclusion was disputed contemporaneously by several of Laureate’s largest institutional shareholders. The Special Committee unanimously recommended on 28 January 2007 that the Board approve the proposed transaction.

The Board unanimously agreed, and Laureate announced the news. Neither Becker nor Hoehn-Saric, another Laureate director who held an interest in Sterling Capital, participated in the Board’s meeting that lead to approval of the offer. On 30 January 2007, Petitioners filed two direct shareholder complaints in the Circuit Court for Baltimore City relating to the proposed merger at the $60.50 per share price. The Circuit Court consolidated the complaints into a single complaint, and Petitioners thereafter filed a Consolidated Amended Complaint on 5 April 2007.

That complaint alleged that, during the course of the acquisition, (1) Board Respondents breached the fiduciary duties that they owed to Petitioners as shareholders, (2) Board Respondents and Investor Respondents conspired to breach those fiduciary duties, and (3) Board Respondents and Investor Respondents aided and abetted that breach. ³³¹ Respondents filed motions to dismiss. 7 On 11 May 2007, the Circuit Court issued an order granting the motion to dismiss of Investor Respondents (excluding Sterling Capital), with prejudice, on the ground that Petitioners had “failed to allege a cognizable duty owed them” by Investor Respondents. The court deferred ruling on the remaining motions. Laureate announced on 3 June 2007 that it accepted an increased offer from Investor Respondents to acquire Laureate at a price of $62 per share by way of a tender offer and second-step (or “short-form”) merger, a process whereby Investor Respondents would purchase, at a price per share equal to the offer price, a number of newly issued shares of Laureate’s common stock sufficient to provide the Investor Respondents with ownership of one share more than 90% of the total shares outstanding and then, by virtue of their 90% ownership, convert all remaining shares of Laureate’s common stock into the right to receive the same price paid per share in the tender offer. 8 The Special Committee’s financial advisors again concluded that the offer was fair financially, but several of Laureate’s institutional shareholders disagreed. The Special Committee unanimously recommended that the Board approve the transaction, and the Board, interested Board Respondents Becker and Hoehn-Saric excluded, approved unanimously the transaction.

The tender offer commenced on 8 June 2007. On 13 June 2007, Petitioners filed a Second Amended Consolidated Complaint naming Board Respondents ³³² as defendants, and alleging but one count-that Board Respondents breached their fiduciary duties owed to Petitioners. 9 On 18 June 2007, Laureate and Board Respondents filed a joint motion to dismiss. The Circuit Court heard argument on the motion and, on 26 June 2007, granted the motion to dismiss the Second Amended Complaint, with prejudice. In its order, the court stated that Petitioners’ claims “suffer from a threshold flaw that is fatal to their efforts,” namely that “the vehicle they have chosen to utilize for those purposes, i.e., a direct action against corporate directors for alleged violations of fiduciary duties, is unavailable to them in Maryland.” The trial judge based his decision on § 2-405.1(g) of the Corporations and Associations Article, holding that subsection (g) “was enacted to foreclose exactly the kinds of claims which [Petitioners] seek to bring in this action” and that Petitioners should have proceeded by making demand on Laureate or, if demand was futile or excused, by suing derivatively in the right of Laureate.

The court also held that Board Respondents’ statutory fiduciary duties ran only to Laureate itself and not directly to Petitioners. Finally, the judge held that Petitioners had no basis for their claim that they were being denied unconstitutionally redress for their injuries. After having their motion for reconsideration of the order of dismissal and a motion for leave to amend the Second Amended Consolidated Complaint denied by the Circuit Court, Petitioners appealed timely to the Court of Special Appeals. ³³³ The Court of Speeial Appeals, in an unreported opinion, affirmed the Circuit Court’s dismissal of Petitioners’ action, holding that directors of Maryland corporations owe no common law fiduciary duties directly to their shareholders and that, in a cash-out merger transaction, any claims shareholders may have against directors for breach of fiduciary duties must be brought derivatively on behalf of the corporation. Specifically, the unanimous panel of the intermediate appellate court concluded that “the plain language of CA § 2-405.1(g) bars Shareholders’ direct claim because the words of that subsection, given their ordinary meaning and read in the manner in which they are most commonly understood, provide that shareholder claims against directors for breaches of fiduciary duties may only be pursued by the corporation or derivatively by its shareholders.” Based on this conclusion, our appellate brethren upheld the Circuit Court’s dismissal of the breach of fiduciary duties claim because it did not state a legally sufficient cause of action. 10 The Court of Special Appeals also affirmed the Circuit Court’s dismissal of Petitioners’ civil conspiracy claim against Investor Respondents based on its determination that Investor Respondents did not owe a fiduciary duty to Petitioners and thus were legally incapable of committing the underlying tort of breach of fiduciary duty.

Finally, the intermediate appellate court held that the Amended Complaint did not allege sufficiently that Investor Respondents encouraged, incited, aided, or abetted the act of the direct perpetrators of the alleged tort, concluding instead that the actions of Investor Respondents were merely those “normally attendant to a private entity pursuing the private acquisition of a public corporation.” We granted the shareholders’ petition for writ of certiorari, 407 Md. 275 , 964 A.2d 675 (2009), to consider the following questions, which we have rephrased for clarity: ³³⁴ I. Did the Court of Special Appeals err in upholding the Circuit Court’s dismissal of Petitioners’ Second Amended Complaint with prejudice on the grounds that § 2-405.1 bars Petitioners’ direct claims against Board Respondents for breaches of fiduciary duties and that Board Respondents did not owe fiduciary duties directly to Petitioners?

II

Did the Court of Special Appeals err in holding that Investor Respondents did not owe and/or could not engage in acts in furtherance of Board Respondents’ breaches of fiduciary duties to Petitioners, and therefore, could not conspire with parties who were capable of committing the underlying tort (ie., the breaches of fiduciary duties)?

III

Did the Court of Special Appeals err in holding that the Amended Complaint did not contain allegations that Investor Respondents encouraged, incited, aided or abetted Board Respondents’ breaches of fiduciary duties owed to Petitioners sufficient to reverse dismissal of the aiding and abetting claims in the Amended Complaint? 11 II. STANDARD OF REVIEW We review the grant of a motion to dismiss as a question of law. Reichs Ford Rd. Joint Venture v. State Rds. ³³⁵ Comm’n of the State Hwy.

Admin., 388 Md. 500, 509 , 880 A.2d 307 , 312 (2005). In considering a dismissal, we inquire whether the well-pleaded allegations of fact contained in the complaint, taken as true, reveal any set of facts that would support the claim made. Pittway Corp. v. Collins, 409 Md. 218, 238-39 , 973 A.2d 771, 783 (2009); Flaherty v. Weinberg, 303 Md. 116, 135-36 , 492 A.2d 618, 628 (1985). A court must assume the truth of all well-pleaded relevant and material facts as well as all inferences that reasonably may be drawn therefrom, and order dismissal only if the allegations and permissible inferences, if true, would not afford relief to the plaintiff, i.e., the allegations do not state a cause of action.

Pittway, 409 Md. at 239 , 973 A.2d at 783 ; Lloyd v. Gen. Motors Corp., 397 Md. 108, 121 , 916 A.2d 257, 264 (2007); Reichs Ford, 388 Md. at 509 , 880 A.2d at 312 ; Alleco, Inc. v. The Harry & Jeanette Weinberg Found., Inc., 340 Md. 176, 193 , 665 A.2d 1038, 1046 (1995); Lizzi v. Washington Metro. Area Transit Auth., 156 Md.App. 1, 7 , 845 A.2d 60, 64 (2003). Any ambiguity or uncertainty in the allegations bearing on whether the complaint states a cause of action must be construed against the pleader.

Alleco, 340 Md. at 193 , 665 A,2d at 1046 . Mere conclusory charges that are not factual allegations need not be considered. Lloyd, 397 Md. at 121 , 916 A.2d at 264-65 . This Court views all well-pleaded facts and the inferences from those facts in a light most favorable to the plaintiff, the non-moving party.

Pittway, 409 Md. at 239 , 973 A.2d at 783 ; Lloyd, 397 Md. at 122 , 916 A.2d at 265 ; Reichs Ford, 388 Md. at 509 , 880 A.2d at 312 .

III

DIRECT AND DERIVATIVE SUITS AGAINST DIRECTORS The Court of Special Appeals held that § 2-405.1(a) provides the sole source of duties owed by corporate directors and that § 2-405.1(g) bars all direct shareholder claims against those corporate directors for breach of their fiduciary duties. 12 We find both of these conclusions to be erroneous, ³³⁶ and hold that, in the context of a cash-out merger transaction, where the decision to sell the corporation already has been made, corporate directors owe their shareholders common law duties of candor and good faith efforts to maximize shareholder value, and that allegations of breach of those duties may be pursued through a direct suit by shareholders. A. The Sources of Corporate Directors’ Duties Section 2-401(a) states that “[t]he business and affairs of a corporation shall be managed under the direction of a board of directors.” § 2-401(a). In undertaking those managerial decisions, directors and officers owe the duty of care contained in § 2-405.1(a) 13 to the corporation and its shareholders. Mona v. Mona Elec.

Group, Inc., 176 Md.App. 672, 695-96 , 934 A.2d 450, 463 (2007). To fulfill this duty of care, directors must perform their managerial acts in good faith, in a manner they believe reasonably to be in the best interest of the corporation, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. § 2-405.1(a). ³³⁷ The Court of Special Appeals here found that § 2-405.1(a) is the sole source of directorial duties. Petitioners seek to refute this conclusion and argue that the only duties referred to in § 2-405.1(a) are those that involve the management of the business and affairs of the corporation, matters in which the corporation has an interest, such as the decision whether a corporation should be sold. Those duties, they concede, must be performed in the best interests of the corporation and are enforceable only by the corporation.

Beyond and pre-existing § 2-405.1(a), however, lie additional common law duties (referred to by Petitioners as “Shareholder duties”) that are triggered once a threshold decision to sell the corporation has been made and which concern only matters personal to the shareholders. Those duties allegedly arise from the Board’s undertaking to negotiate the price that shareholders will receive for their shares in a cash-out acquisition of ownership of the corporation, and include fiduciary duties of candor and maximization of the consideration offered for the shares. On this point, we agree with Petitioners and hold that directors of Maryland corporations owe fiduciary duties of candor and maximization of shareholder value to their shareholders beyond those enumerated in § 2-405.1(a), at least in the context of negotiating the amount shareholders will receive in a cash-out merger transaction. It long has been established, by cases decided both prior to and subsequent to the Legislature’s enactment of the duty of care for corporate directors contained in § 2-405.1(a), that directors of Maryland corporations stand in a fiduciary relationship to the corporations that they manage and the shareholders of those corporations, a relationship that imposes on directors duties of care, loyalty, and good faith.

Hoffman Steam Coal Co. v. Cumberland Coal & Iron Co., 16 Md. 456, 507 (1860); Booth v. Robinson, 55 Md. 419, 436-37 (1881); Storetrax.com, Inc. v. Gurland, 397 Md. 37, 53 , 915 A.2d 991, 1000 (2007); Mona, 176 Md.App. at 695 , 934 A.2d at 463 . We have noted that the “confidence reposed in them, and the position they occupy towards the corporation and its stockholders, require a strict and faithful discharge of duty, and ³³⁸ they are not allowed to derive from their position, either directly or indirectly, any profit or advantage whatever, except it be with the full knowledge and concurrence of the company, represented by others than themselves.” Booth, 55 Md. at 437 ; Coffman v. Maryland Publ’g Co., 167 Md. 275, 289 , 173 A. 248, 254 (1934) (noting that officers and directors “stand in a fiduciary relationship both to the corporation and to the stockholders, and may not under any circumstances use the power intrusted to them to promote their personal interests at the expense of the stockholders”). We have found also that “[fit is clear that officers and directors of a corporation stand in a sufficiently confidential relation to the corporation’s stockholders to impose a duty upon them to reveal all facts material to the corporate transactions.” Parish v. Maryland & Virginia Milk Producers Ass’n, 250 Md. 24, 74 , 242 A.2d 512, 539 (1968). These fiduciary duties are not intermittent or occasional, but instead are the “constant compass by which all director actions for the corporation and interactions with its shareholders must be guided.” Storetrax, 397 Md. at 54 , 915 A.2d at 1001 (quoting Malone v. Brincat, 722 A.2d 5, 10 (Del.1998)). 14 It is without question that § 2-405.1(a) governs the duty of care owed by directors when they undertake managerial decisions on behalf of the corporation.

When directors undertake to negotiate a price that shareholders will receive in the context of a cash-out merger transaction, however, they assume a different role than solely “managing the business and affairs of the corporation.” Duties concerning the management of the corporation’s affairs change after the decision is made to sell the corporation. See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 182 (Del.1986) (noting that, once sale became inevitable, “[t]he directors’ role changed from defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders ³³⁹ at a sale of the company”). Beyond that point, in negotiating a share price that shareholders will receive in a cash-out merger, directors act as fiduciaries on behalf of the shareholders. See Paramount Commc’ns Inc. v. QVC Network Inc., 687 A.2d 84, 48-49 (Del.1994) (noting that once directors decide to sell control of a corporation, they have an obligation to search for the best value reasonably available to the stockholders).

As a result of the confidence and trust reposed in them during the price negotiation, their ability to affect significantly the financial interests of the shareholders, and the inherent conflict of interest that arises between directors and shareholders in any change-of-control situation, the common law imposes on those directors duties to maximize shareholder value and make full disclosure of all material facts concerning the merger to the shareholders. See Bennett v. Propp, 187 A.2d 405, 409 (Del.1962). Based on the well-established principle that statutes are not presumed to make alterations in the common law other than as may be declared expressly, we disagree with the Court of Special Appeals’s and Board Respondents’ contentions that § 2-405.1(a) supersedes or supplants all recognized common law duties that pre-existed the adoption of the statute in 1976. See Walzer v. Osborne, 395 Md. 563, 573-74 , 911 A.2d 427, 433 (2006); Davis v. Slater, 383 Md. 599, 615-16 , 861 A.2d 78, 87 (2004); Romm v. Flax, 340 Md. 690, 698 , 668 A.2d 1, 4-5 (1995).

We read § 2-405.1(a) as codifying the duty of care owed by directors when acting in their managerial capacities, rather than as a replacement of all previously recognized common law fiduciary duties of directors owed to the corporation and its shareholders. As such, we hold that § 2-405.1(a) does not provide the sole source of directorial duties, and that other, common law fiduciary duties of directors remain in place and may be triggered by the occurrence of appropriate events. This view is shared in an opinion authored by the Maryland Attorney General in 1997. See 62 Op.

Atty Gen. Md. 804 (Md.1977). There, the Attorney General contended that the ³⁴⁰ statutory standard of care contained in § 2-405.1(a) imposes “separate and distinct obligations upon corporate officers and directors” from other common law duties, such as the duty to refrain from usurping a corporate opportunity. Id. at 812.

In that opinion, cited favorably by the Court of Special Appeals in cases prior to the present litigation, see Indep. Distribs., Inc. v. Katz, 99 Md.App. 441, 461 , 637 A.2d 886, 895 (1994), the Attorney General opined that when the Legislature enacted § 2-405.1(a), “it did not intend to abrogate the fiduciary duty imposed upon a director or officer not to usurp a corporate opportunity.” 62 Op. Atty Gen. Md. at 13-14.

Although we deal here with directorial duties other than refraining from usurping corporate opportunity, the Attorney General’s opinion suggests that, in enacting § 2-405.1(a), the General Assembly did not seek to occupy the entire field of directorial duties owed by corporate directors, but instead intended to codify the duty of care owed by directors in exercising their managerial duties. Our conclusion also is consistent with the Delaware Supreme Court’s holding in Revlon. In that case, the Delaware Supreme Court held that, where it is clear that the board has determined that the corporation is for sale or sale is a foregone conclusion, the duty of the directors “changed from the preservation of [the corporation] as a corporate entity to the maximization of the company’s value at a sale for the stockholders’ benefit.” Revlon, 506 A.2d at 182 . The court noted that, at this point, the “directors’ role changed from defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders at a sale of the company.” Id.

Board Respondents contend that § 2-405.1(f), an amendment to the statute added in 1999 stating that “[a]n act of a director relating to or affecting an acquisition or a potential acquisition of control of a corporation may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director,” demonstrates the Maryland Legislature’s intent to reject the reasoning of Revlon and the line of Delaware cases that follow it. As will be discussed infra, it is ³⁴¹ clear to us that the 1999 amendments to § 2-405.1 merely enhanced the protections and defense mechanisms that directors may employ against hostile takeover attempts. Revlon and the duties that it described are aimed at the duties involved in a situation where sale of the corporation is a foregone conclusion and the primary remaining interests are those of the shareholders in maximizing their share value in a sale. For that reason, coupled with the presumption regarding the effect of statutory enactments on the common law discussed infra, we conclude that § 2-405.1 does not supersede the common law duties long recognized in Maryland, including those characterized in Revlon, that, when faced with an inevitable or highly likely change-of-control situation, corporate directors owe their shareholders fiduciary duties of candor and maximization of shareholder value.

Thus, we hold that the Court of Special Appeals erred in concluding that § 2-405.1(a) is the sole source of directorial duties for Maryland corporations and that that subsection supersedes and subsumes all pre-existing common law duties owed by corporate directors to their shareholders. Once the threshold decision to sell Laureate was made, Board Respondents owed fiduciary duties of candor and maximization of shareholder value to Petitioners, common law duties not encompassed or superseded by § 2-405.1(a). B. Derivative and Direct Suits The Court of Special Appeals held that Petitioners could not pursue their claims for breach of fiduciary duty directly because § 2-405.1(g), also added in 1999, bars all shareholder direct claims and they had “presented no evidence that their grievances are personal to them rather than common to all of Laureate’s shareholders.” Thus any such claim for breach of fiduciary duties had to proceed derivatively, if at all. Petitioners argue that the “only parties with any interest in — and therefore, with any claim regarding — how much Laureate’s public shareholders would personally receive for their shares are the shareholders themselves,” and that the “only means available for [Petitioners] to protect themselves from ³⁴² loss of their property for inadequate consideration as a direct result of the breaches of fiduciary duties by [Board Respondents] is through a direct action.” They claim that, when it comes to the consideration that shareholders receive for their stock in a cash-out merger transaction, the corporation has no interest and, thus, no enforceable right to be asserted derivatively.

In riposte, Board Respondents contend that a direct claim by a shareholder for breach of duty cannot proceed unless there was an independent and personal relationship between the shareholder and the director. We agree with Petitioners and hold that, in a cash-out merger transaction where the decision to sell the corporation already has been made, shareholders may pursue direct claims against directors for breach of their fiduciary duties of candor and maximization of shareholder value. The business and affairs of a corporation, including the decision to institute litigation, are managed generally under the direction of its board of directors. Bender v. Schwartz, 172 Md.App. 648, 665 , 917 A.2d 142, 152 (2007).

Ordinarily, a shareholder does not. have standing to sue to redress an injury to the corporation resulting from directorial mismanagement. Mona, 176 Md.App. at 697-98 , 934 A.2d at 464 . Developed as a check on directorial power, the derivative form of action permits an individual shareholder or group of shareholders to bring suit to enforce a corporate cause of action against officers, directors, and third parties where those in control of the company refuse to assert a claim belonging to it. Bender, 172 Md.App. at 665 , 917 A.2d at 152 ; Mona, 176 Md.App. at 698 , 934 A.2d at 464 .

The purpose of the derivative action is to “place in the hands of the individual shareholder a means to protect the interests of the corporation from the misfeasance and malfeasance of ‘faithless directors and managers.’ ” Danielewicz v. Arnold, 137 Md.App. 601, 626 , 769 A.2d 274, 289 (2001) (quoting Cohen v. Beneficial Indus Loan Corp., 337 U.S. 541, 548 , 69 S.Ct. 1221, 1226 , 93 L.Ed. 1528 (1949)). ³⁴³ In Waller v. Waller, we outlined in detail the general concept of the derivative suit and the reasons for allowing such claims: It is a general rule that an action at law to recover damages for an injury to a corporation can be brought only in the name of the corporation itself acting through its directors, and not by an individual stockholder though the injury may incidentally result in diminishing or destroying the value of the stock. The reason for this rule is that the cause of action for injury to the property of a corporation or for impairment or destruction of its business is in the corporation, and such an injury, although it may diminish the value of the capital stock, is not primarily or necessarily a damage to the stockholder, and hence the stockholder’s derivative right can be asserted only through the corporation. The rule is advantageous not only because it avoids a multiplicity of suits by the various stockholders, but also because any damages so recovered will be available for the payment of debts of the corporation, and, if any surplus remains, for distribution to the stockholders in proportion to the number of shares held by each. Waller v. Waller, 187 Md. 185, 189-90 , 49 A.2d 449, 452 (1946).

We continued to say that: Generally, therefore, a stockholder cannot maintain an action at law against an officer or director of the corporation to recover damages for fraud, embezzlement, or other breach of trust which depreciated the capital stock or rendered it valueless. Where directors commit a breach of trust, they are liable to the corporation, not to its creditors or stockholders, and any damages recovered are assets of the corporation, and the equities of the creditors and stockholders are sought and obtained through the medium of the corporate entity. Id. at 190 , 49 A.2d at 452 . In order to sue derivatively on behalf of the corporation, a plaintiff shareholder must overcome a number of procedural hurdles and demonstrate that he or she, rather ³⁴⁴ than the corporation itself, should control the litigation.

Specifically, before instituting suit, the derivative plaintiff either must make a demand on the corporation’s board of directors to pursue the claim against the offending parties or demonstrate to the court that such demand would be futile due to the conflicting interests of the members of the board. Bender, 172 Md.App. at 666 , 917 A.2d at 152 ; Mona, 176 Md.App. at 699 , 934 A.2d at 465-66 . Once demand is made, the corporation’s board of directors must conduct an investigation into the allegations in the demand and determine whether pursuing the demanded litigation is in the best interests of the corporation. Bender, 172 Md.App. at 666 , 917 A.2d at 152 ; Mona,