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Florida Shareholder Derivative Actions and Payment of Costs and Attorney’s Fees

As shareholder, you may eventually find it necessary to contemplate a derivative lawsuit. Like anyone considering legal action, you must identify what your goals are, and also identify what your potential risks are. For some types of shareholders, the fear of the negative repercussions of defeat may intimidate them into not taking action. Fortunately, a recent case from Miami-Dade County offers some potentially good news for certain shareholders considering derivative actions. In short, don’t let your fear scare you away from asserting your rights. Instead, reach out to a knowledgeable South Florida shareholder litigation attorney to get the advice you need about your case.

In that recent case, R.C. filed a shareholder derivative suit in Miami-Dade County against a corporation and several of its directors. The corporation fought back by filing a motion to dismiss the shareholder’s lawsuit.

After an independent investigator completed her work and issued her report, the trial judge dismissed R.C.’s lawsuit with prejudice, which meant that he could not re-file. After winning the motion, the corporation asked the court to order the shareholder to pay attorney’s fees and costs, including the costs related to the independent investigation.

The trial court sided with the corporation, ordering the shareholder to pay attorney’s fees and costs, including investigation-related costs that totaled more than $125,000. This nearly doubled the amount the shareholder owed, as it made the total award of fees and costs more than $268,000. The trial court concluded that the shareholder owed the investigative costs because they constituted a “taxable cost” under the law (Section 57.041 of the Florida Statutes.)

As the shareholder argued, and the appeals court agreed, that was incorrect. There was another statute that more directly covered specific scenarios like R.C.’s. That law, Section 617.07401(5) of the Florida Statutes, says that a trial judge “may require” a losing shareholder to pay “reasonable expenses” if the court “finds that the proceeding was commenced without reasonable cause.”

In R.C.’s case, the trial court never made any sort of finding indicating that R.C. filed or pursued his case in an absence of good faith or without reasonable cause. Without such a finding, the law did not permit the court to require the shareholder to pay the investigative expenses. In making this ruling limiting the exposure of losing plaintiffs in shareholder derivative actions like this one, the appeals court took care to differentiate Section 617.07401(5) “from other, more conventional ‘prevailing party’ provisions.”

So, what should you make of an outcome like R.C.’s? You can take away this: it is almost never the right answer simply to assume that the costs of pursuing legal action are too great and that you should give up on your case before you even start. Instead, before you make any final decision, get skillful and useful advice from a legal professional you can trust. Rely on the knowledgeable shareholder litigation attorneys at Stok Kon + Braverman to give you the diligent representation your case deserves.

Contact us online or by calling (954) 237-1777 to schedule your consultation and learn more about how you can put the power of this office to work for you.

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