When shareholders of a company believe the leaders of the company have breached their fiduciary duties to it, they can bring a lawsuit against those leaders in one of two ways. Shareholders can bring the suit in their own names (a direct suit), or they can bring it on behalf of the company if the company failed to bring claims against the leaders on its own (a derivative suit). If the injuries the shareholders are alleging were only suffered by the company, they cannot move forward with any direct claims.When bringing a derivative claim in federal court, the plaintiffs must comply with Federal Rule of Civil Procedure 23.1. The rule, besides explaining what a derivative complaint must include, prevents a plaintiff from bringing a derivative lawsuit if the plaintiff “does not fairly and adequately represent the interests of shareholders or members who are similarly situated in enforcing the right of the corporation or association.”In shareholder derivative lawsuits brought by shareholders of large public or private companies, rarely does this “adequate representation” element pose a problem. Plaintiffs’ attorneys spend an inordinate amount of time vetting would-be derivative suit plaintiffs to ensure that, based on the factors courts look at, the shareholder(s) they represent will almost certainly pass this test. And with hundreds or thousands of shareholders to choose from in these situations, plaintiffs’ attorneys often have the luxury of never having to settle for an “inadequate” shareholder.But in the closely held company world, derivative lawsuits are a whole other ballgame. With a smaller number of

The plaintiff alleged that diversity maximizes shareholder wealth and that the lack of racial diversity at Tractor Supply contributed to economic disparities at the company. Because, according to the plaintiff, the defendants had failed to sufficiently promote diversity within the company while, at the same time, made statements in Tractor Supply’s 2020 proxy statement that the Board was “committed to the principles of diversity and inclusion,” they had violated Section 14(a) of the Exchange Act.Similar to several other opinions dealing with this issue, the United States District Court for the Middle District of Tennessee dismissed the case, finding that the plaintiff had failed to comply with Federal Rule of Civil Procedure 23.1. Unlike some other cases alleging this type of fact pattern, while Tractor Supply is incorporated in Delaware, the defendants did not seek to dismiss the case based on a forum-selection clause in its charter or bylaws.

Plaintiffs alternatively claim that Dasari is suing on behalf of Novedea in a shareholder-derivative capacity. Federal Rule of Civil Procedure 23.1 allows “one or more shareholders . . . [to] bring a derivative action to enforce a right that the corporation or association may properly assert but has failed to enforce.” But derivative-action complaints must meet certain pleading requirements, including a particularized statement describing “any effort by the plaintiff to obtain the desired action from the directors . . . and the reasons for not obtaining the action or making the effort.”

Ch. June 11, 2012) involved stockholder derivative litigation in both the Delaware Court of Chancery and the U.S. District Court for the Central District of California. After the federal court dismissed the plaintiffs’ complaint pursuant to FRCP Rule 23.1 with prejudice (In re Allergan, Inc. Shareholder Derivative Action, 2012 U.S. Dist. LEXIS 5590), the defendants in the Delaware action moved for dismissal on the grounds of collateral estoppel. Vice Chancellor Lasterdenied the motion, finding the dismissal of the federal action persuasive but not dispositive.

Fairly and adequately represents the interests of the corporation in enforcing the right of the corporation."At the request of both sides, the Court in Jennings looked to the discussion of the federal rule dealing with derivative actions, FRCP 23.1, as discussed in Davis v. Comed, Inc., 619 F.2d 588 (6th Cir. 1980), and like cases - and so it did, which in itself is interesting.The trial court's decision to deny standing was affirmed, because of the would-be plaintiff's adverse economic interests, even though not directly related to the claim at issue, and because the other owners opposed the litigation, even though the other owners were few.

he Boardroom 2022” and encouraged readers to vote against every Starbucks director up for reelection. The Center also presented several shareholder proposals, including one to require Starbucks’ Board nominees to disclose their “ideological perspectives” and another to create a Board committee to review Starbucks’ “woke business practices.” Shareholders overwhelmingly rejected the proposals, with only 1% and 3% of total possible votes cast in favor.In March 2022, a “public-interest law firm” called the American Civil Rights Project published an open demand to Starbucks’ Board on behalf of the Center demanding that Starbucks retract its DEI initiatives. (The firm sent similar letters to many other large public companies.) When Starbucks did not accede to the demand, the Center filed a shareholder derivative action seeking declaratory and injunctive relief for violations of federal and state law, including breach of fiduciary duty.The Court’s DecisionThe court dismissed the action under Federal Rule of Civil Procedure 23.1 (which governs pleadings in federal derivative actions) and Washington law (the law of Starbucks’ state of incorporation).The court first held that the Center did not “fairly and adequately represent the interests” of Starbucks and its shareholders because the Center had filed the suit not “to enforce the interests of Starbucks, but to advance its own political and public policy agendas.” Moreover, the Center owns only 56 shares of Starbucks stock, and its “dislike of DEI and ESG Initiatives has little support from Starbucks’ other shareholders and no support from Starbucks’ Board,” as evidenced by the votes on the Center’s shareholder proposals.In addition, the Center had not pled facts showing that Starbucks’ Board had wrongfully refused its demand for action. The Complaint did not show that the Board’s investigation of the demand was “unreasonable or not undertaken in good faith,” that the Board “was not sufficiently informed, or that its process was in any way inadequate.” The Boa

Section 800 of the California Corporations Code applies to actions brought in the name of any domestic or foreign corporation, aka derivative actions. It is similar, but not the same as, Delaware Court of Chancery Rule 23.1 and Federal Rule of Civil Procedure Rule 23.1.A key, yet subtle, difference can be found in Section 800(b)(2) which requires that a plaintiff allege with particularity its efforts to secure action from the board of directors or the reasons why it did not make the effort. For those familiar with Delaware Court of Chancery Rule 23.1 or Federal Rule of Civil Procedure Rule 23.1, this is known as the requirement to plead either that a demand was made or demand futility. California adds something more, however. I've copied Section 800(b)(2) and highlighted the additional California requirement below:The plaintiff alleges in the complaint with particularity plaintiff's efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort,and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file.InRe v. Weksel,130 A.D.2d 640 (1987), the Appellate Division of the New York Supreme Court applied the same language in former Section 15702(a)(2) (governing derivative suits by domestic or foreign limited partnerships) to dismiss a plaintiffs' suit:Although the complaint alleges why the plaintiffs believe that a demand upo

The plaintiffs alleged that the individual defendants breached their fiduciary duties to the company and violated Sections 10(b) and 14(a) of the Securities Exchange Act by ignoring and making misstatements about improper sales practices at the bank. The plaintiffs further claimed, as required by Rule 23.1(b)(3) of the Federal Rules of Civil Procedure, that a presuit demand on Fifth Third directors would have been futile. Looking to the substantive law of Ohio, Fifth Third’s state of incorporation, the court held that the plaintiffs failed to show with particularity that a demand would have been futile and dismissed the case.

Moreover, several defendants sold shares—amounting to more than $28 million—prior to the second quarter disclosure.Under Federal Rule of Civil Procedure Rule 23.1, shareholders asserting derivative claims must plead that they have made a pre-suit demand on the board to bring the desired action or the reasons for not doing so. The Court explained that Delaware law provides the “framework for assessing demand futility” with respect to a Delaware corporation.

The case involved, among other things, a derivative claim brought by a member of a Nevada limited liability company, SDS. Under Rule 23.1 of the Federal Rules of Civil Procedure, a member must "state with particularity: . . . any effort by the plaintiff to obtain the desired action from the directors or comparable authority and, if necessary, from the shareholders or members; and . . . the reasons for not obtaining the action or not making the effort." In other words, the plaintiff must either state that demand wasexcused or that demand was made andwrongfully refused.