Reference no: EM131660742

Question: Business Judgment Rule. Charles Pace and Maria Fuentez were shareholders of Houston Industries, Inc. (HII), and employees of Houston Lighting & Power, a subsidiary of HII, when they lost their jobs because of a companywide reduction in its workforce. Pace, as a shareholder, three times wrote to HII, demanding that the board of directors terminate certain HII directors and officers and file a suit to recover damages for breach of fiduciary duty. Three times, the directors referred the charges to board committees and an outside law firm, which found that the facts did not support the charges. The board also received input from federal regulatory authorities about the facts behind some of the charges. The board notified Pace that it was refusing his demands. In response, Pace and Fuentez filed a shareholder's derivative suit in a Texas state court against Don Jordan and the other HII directors, contending that the board's investigation was inadequate. The defendants filed a motion for summary judgment, arguing that the suit was barred by the business judgment rule. Are the defendants right? How should the court rule? Why? [Pace v. Jordan, 999 S.W.2d 615 (Tex.App.-Houston [1 Dist.] 1999)]