Does A Court Have To Hear A Shareholder Derivative Lawsuit In Florida?
A shareholder derivative lawsuit is a legal action initiated by one or more shareholders of a company on behalf of the company against a third party, typically its officers and directors, for alleged wrongdoing. In a derivative lawsuit, the shareholder acts as a representative of the company and brings the lawsuit against the alleged wrongdoer(s) on behalf of the company itself.
You may be wondering: Does a court have to hear a shareholder derivative lawsuit? The short answer is “no”—plaintiffs in shareholder derivative lawsuits must establish “demand futility” before their case can move forward. Here, our Miami shareholder dispute lawyer explains what you should know about the demand futility rule and how it applies to shareholder derivative claims.
Background: Florida is a Demand Futility State for Shareholder Derivative Litigation
Our state reformed its procedural requirements for shareholder derivative litigation a few years ago. Under the updated regulations shareholder derivative lawsuits in Florida are now subject to the demand futility requirement. In effect, a shareholder(s) can only bring a derivative action to court if they make a proper demand to the corporation’s Board of Directors and if the response is inadequate or they can prove that making any such demand would be futile.
A More Detailed Understanding of the Law: Three Ways to Satisfy Demand Futility in Florida
Under Florida Statutes § 607.0742, a court will not hear a shareholder derivative case unless the state’s demand futility requirement has been made. Indeed, courts do not even have discretion to hear this case. They must dismiss such a derivative action on procedural grounds. Here are the three different ways that shareholder plaintiffs in Florida can satisfy the demand futility requirement:
- A Proper Demand Was Made, The Corporation Refused It: Shareholders can meet the demand futility prerequisite by presenting a distinct request for action to the corporation’s leadership. If the request is denied, a derivative lawsuit can clear this requirement.
- A Proper Demand Was Made, The Corporation Ignored It for Three Months: Company executives may not always explicitly reject shareholder demands. State legislation offers recourse to shareholders whose demands remain unaddressed. 90 days is sufficient for a demand to be ignored to justify a claim.
- No Demand Was Made, But Matter is So Time-Sensitive that Demand Would Be Futile: In some shareholder derivative cases in Florida, a 90-day waiting period is not obligatory. Courts may grant an exception if the plaintiffs (shareholders) can demonstrate that the matter is time-sensitive and necessitates immediate legal intervention.
Schedule a Confidential Case Review With a Miami Shareholder Derivative Lawsuit Attorney
At Pike & Lustig, LLP, our Miami shareholder dispute lawyer has the skills and experience to handle the full range of shareholder derivative lawsuits. If you have any specific questions or concerns about the demand futility rule and shareholder derivative litigation, we are here to help. Contact us today to arrange your fully confidential initial consultation. Our firm has offices in Miami, West Palm Beach, and Wellington. We handle shareholder litigation across Southeast Florida.
