The Three Most Common Grounds on Which a Shareholder Derivative Claim Can Be Dismissed
A shareholder derivative lawsuit is a legal claim filed by a shareholder or group of shareholders on behalf of the corporation itself. It is often but not always filed against the company’s officers, directors, or another key insider. When a shareholder derivative lawsuit is filed, corporate leaders typically move for an immediate dismissal. Here, our Miami shareholder derivative litigation attorneys highlight the three most common grounds upon which these types of cases are dismissed.
- Failure to Meet Demand Futility Standard
There are very strict, comprehensive procedural requirements that must be met before a shareholder derivative lawsuit can be heard by a court. In Florida, a common ground for dismissing a shareholder derivative claim is the plaintiff’s failure to meet the demand futility standard. In fact, this is the most common reason why these cases are dismissed.
The demand futility standard is a legal threshold that requires the plaintiff to demonstrate that making a formal demand on the board to address the matter was properly made or that making such a demand would have been futile—often because the board members are either biased or involved in the alleged misconduct themselves.
- Officers/Directors Protected Under Business Judgment Rule
In Florida, the business judgment rule offers a strong shield for officers and directors against shareholder derivative claims. The business judgment rule holds that corporate directors and corporate officers are protected from liability for decisions made in good faith, on an informed basis, and with the honest belief that the actions taken were in the best interests of the company. It does not matter if those decisions turned out to be wrong. When applied, this rule can lead to the dismissal of derivative claims, as courts defer to the business decisions made by officers and directors unless clear evidence of fraud, bad faith, or abuse of discretion.
- Plaintiff Lacks Standing (No Ownership of Shares at Time of Cause of Action)
A fundamental requirement for filing a shareholder derivative claim in Florida is that the plaintiff must have been a shareholder at the time the alleged wrongdoing occurred. If the plaintiff did not own shares during the time of the disputed actions, they lack standing to pursue a derivative lawsuit. The requirement ensures that only people with a genuine stake in the company’s welfare at the time of the cause of action can hold corporate leaders accountable for their conduct.
Shareholder Derivative Litigation is Complicated
Shareholder disputes are complicated—especially so for shareholder derivative litigation. You do not have to navigate a derivative action—including the procedural requirements—on your own. An experienced attorney can review the situation and help you determine the best path forward.
Contact Our Miami Shareholder Litigation Attorney Today
At Pike & Lustig, LLP, our Miami shareholder dispute lawyer has the skills, training, and legal expertise to take on the full range of derivative litigation. If you have any questions about a shareholder derivative lawsuit, we can help. Contact us today to set up your completely confidential, no obligation initial case review. Our attorneys serve clients throughout South Florida.
