This blog, written by Thomas E. Rutledge, focuses primarily on business entity law in Kentucky. Postings on contract law, contractual and statutory construction, and the entity law of other jurisdictions appear as well. There may as well be some random discussions of classical, medieval and renaissance history.
Monday, December 22, 2014
Derivative Action Dismissed for Failure to Make Demand and Adequately Represent Corporate Interests
Action Dismissed for Failure to Make Demand and Adequately Represent Corporate
In a recent decision the Court of Appeals affirmed the
dismissal of a derivative action against the Gannett Company, Inc., although
the plaintiff would not accept that the action was derivative, on the basis that shareholder had not plead demand made upon the
board and failure to adequately represent the “interests of the similarly
situated shareholders in representing the rights of the corporation.”Flint v. Jackson, No. 2014-CA-000426-MR (Ky.
App. Dec. 19, 2014).
Flint filed suit against several
senior executives of the Courier-Journal (owned by Gannett) alleging a variety
of claims for failure to report on his efforts to, for example, have several
judges impeached by the General Assembly, alleging that persons in the
government have promised payments to them if they will not run stories about
Flint’s efforts to have these person’s impeached, similar allegations of blackmail,
etc.The trial court dismissed the
action under C.R. 12 for failure to state a cause of action for which relief
could be granted, this being a derivative action.
On the basis that this is a
derivative action, the court considered the elements that must be present for a
derivative action to proceed. The Court
applied Kentucky corporate law.Gannett
is a Delaware corporation, and it should have been that law applied.That said, the outcome would have been the
same. Initially it was accepted that Flint was a Gannett shareholder.Flint’s complaint was dismissed for failure
to plead either that he had made demand upon the corporation for action before
filing the complaint, or in the alternative pleading futility.Second, the trail court determined that Flint
did not adequately represent the “interests of the similarly situated
shareholders in representing the rights of the corporation.” Slip op. at 8.
As to the alleged personal injury, which if existing
would remove the action from the requirements of a derivative action, the Court
of Appeals affirmed the determination that under the First Amendment there is
not “authority to order publication of information against the paper’s
editorial discretion.”Slip op. at 8-9.
As for the failure to adequately represent the interests
of the corporation, this decision is consistent with that from earlier this
year in Watkins v. Stock Yards Bank &
Trust Co., No. 2011-CA-000228-MR, 2012 WL 2470692 (Ky. App. June 29, 2012)
(To Be Published), which decision was reviewed HERE IS A LINK.As an alternative basis for the dismissal of
the suit as a derivative action, the Court could have relied upon the
requirement that a corporation be represented by counsel, and that Flint as a
non-attorney may not represent the interests of the corporation.
concurring decision from Judge Maze provides a discussion of the limitations
that may and in his view should be imposed upon pro se plaintiffs, especially
those who like Flint file significant numbers of suits.