A shareholder derivative suit can be very complex and challenging, whether you are the shareholder who is acting as a plaintiff in the case, or a person or entity defending against it. There may be many different pathways that can lead to success… or failure. Many of these paths involve understanding all of the procedural hurdles that a shareholder must clear. This is one of the many reasons why, whether you are the shareholder plaintiff or a defendant, you need a knowledgeable South Florida commercial litigation attorney on your side.
If you are considering a derivative action, chances are that you have a case that a third party or your entity’s management has harmed the company of which you’re a shareholder. This may involve a breach of fiduciary duty, fraud, waste of the entity’s assets or other wrongdoing.
As some recent cases have highlighted, there are preliminary steps that must be completed. Typically, before you can proceed with your derivative lawsuit, you first have to go to your entity’s board of directors and ask them to sue the third party directly if the alleged wrongdoer is a third party (or ask the board to cease its harmful course if your claim is that the board is the wrongdoer.) If they say “no”, then you can proceed with your derivative case. That demand, though, is a vital preliminary step and, if it isn’t performed, that failure often will often derail the shareholder’s entire case, regardless of the proof the shareholder has.
In the most recent case, the court appointed an independent investigator to investigate the allegations made by the shareholder. The investigator concluded that the shareholder’s lawsuit was barred by the law specifically because the shareholder did not serve a pre-suit demand on the board of directors. In a case from last year, the court concluded that the shareholder was required to engage in the pre-suit demand process even if they did not file their lawsuit under the derivative claim statute. The court stated that “plaintiffs may not decide that they are not subject to statutory requirements merely by labeling their allegations in an effort to avoid them.”
Exceptions to the pre-suit demand requirement
There may possibly be certain exceptions under which you are not required to make a demand prior to suing. Recognizing this can be extremely important as there may be strategic reasons why it would be to your advantage to proceed without engaging in the demand process. In recent years, the courts have affirmed that the Florida Revised LLC Act allows a shareholder of an LLC to proceed without engaging in the pre-suit demand process if making that demand would be “futile.” The Florida Business Corporations Act, however, does not contain a similar futility exception, and instead imposes a pre-suit demand obligation on all shareholders seeking to pursue derivative actions.
The knowledgeable South Florida commercial litigation attorneys at Stok Kon + Braverman are here to help you with your shareholder derivative action, whether you are the plaintiff or are a defendant. Rely on our experienced attorneys for effective representation that can deliver positive results.
Contact us online or by calling (954) 237-1777 to schedule your consultation and find out how this firm can help you.