Derivative Action Dismissed for Failure to Make Demand and Adequately Represent Corporate Interests

Derivative Action Dismissed for Failure to Make Demand and Adequately Represent Corporate Interests

 

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.

 

            A 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.