CV Sciences Prepared To Settle Shareholder Derivative Lawsuit
According to a report from Natural Product Insider, CV Sciences—a hemp industry and alternative health company with a main headquarters in California—is on the verge of settling a shareholder derivative lawsuit. The preliminary settlement of the derivative claim still needs to be approved by a federal judge in Nevada. Here, our West Palm Beach shareholder dispute attorneys discuss the proposed shareholder derivative settlement in more detail.
Background: Company Accused of Material Misrepresentations Regarding Patent
CV Sciences has a proposed patent for a smokeless tobacco addiction treatment product. In August of 2020, a prominent short seller accused the company of material misrepresentations about the status of that patent. The company’s stock price plummeted by nearly 65 percent on that day alone.
Based on the short seller’s allegations and the sharp drop in share price, several shareholder derivative lawsuits were filed against CV Sciences on the grounds that the company made material misrepresentations. The proposed settlement would resolve the outstanding shareholder derivative claims for $275,000. As noted previously, the settlement still needs to be approved by a judge.
A Shareholder Derivative Lawsuit is Filed on Behalf of a Corporation
There are two broad categories of shareholder lawsuits: direct actions and derivative actions. A shareholder derivative lawsuit is a type of legal claim that is filed on behalf of a corporation itself. In other words, the shareholders are technically not the “plaintiffs”—at least as individuals. Instead, the corporation is the plaintiff. The shareholders, as partial owners of the corporations, would derive a benefit if successful legal action is taken.
Most often, a shareholder derivative lawsuit is filed against the directors, officers, and other high-level employees of the corporation. The purpose of this type of lawsuit is to ensure that a corporation takes legal action that it has available to it. As officers, directors, or other top decision-makers are often the defendants in shareholder derivative lawsuits, they are obviously not interested in directing the company to bring such a claim.
General Rule: Shareholders Must Exhaust Available Internal Remedies
With shareholder derivative claims, there is a general rule that shareholders must exhaust their internal remedies before filing a derivative lawsuit. Most often, this means making a specific demand upon the Board of Directors. Only if declines to follow through with such a demand would a shareholder or group of shareholders be in a position to file a derivative lawsuit. If you have questions about derivative actions, an experienced attorney can help.
Contact Our West Palm Beach Shareholder Derivative Lawsuit Attorney Today
At Pike & Lustig, LLP, our Florida shareholder derivative lawyers are skilled and experienced advocates for clients. We handle the full range of shareholder derivative cases. If you have questions about your rights or your options, our legal team is here to help. Contact us today for a confidential initial consultation. We handle shareholder disputes throughout Palm Beach County, including in West Palm Beach, Boca Raton, Boynton Beach, Delray Beach, Jupiter, and Wellington.