Shareholder derivative actions

Shareholder derivative actions - Shareholder derivative...

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Shareholder derivative actions: Cohen v Beneficial Industrial loan Corp Complaint alleged that since 1929, defendants (corp and certain managers and directors) engaged in successful conspiracy to enrich themselves at expense of the corp. There was mismanagement and fraud over 18 years. 100k was wasted or diverted. NJ law made plaintiff liable for reasonable expenses and attorney’s fees of defense if he failt to win complaint when the shareholder who brings suit has less than 50k in stock. The petitioner must indemnify corp before case can proceed. Constitutionality of NJ statute: Due process concerns: “a state may set the terms on which it will permit litigations in its courts. No type of litigation is more susceptible of regulation than that of a fiduciary nature” Equal protection concerns: shockholder who owns 5% or 50k in value doesn’t have to provide security or liability while smaller interests do. Court says this is okay. “state can use amount of financial interest to measure good faith and responsibility of the person bringing suit. Erie Question Rule of procedure or substance? If procedural, fed rules apply if substantive, state rules apply. It creates a new liability where none existed before. It goes beyond payment of costs Eisenberg v Flying Tiger Line, Inc. Eisenberg sued to enjoin plan of reorg and merger. In july 1969, flying tiger organized deleware subsidiary FTC FTC organics subsidiary FTL air freight Flying tiger merged into FTL and only FTL survived. After merger Flying tiger ceased as OpCo TTL took over operations and flying tiger shares were converted into identical number of FTC shares. Now bus operations are confined to a wholly owned subsidiary of holding co whose stockholders are former flying tiger shareholders. NY § 627 makes plaintiff post security in derivative actions. But this is a class action, so representative not derivative. (Injury to corp = derivative injury to shareholder = representative) Grimes v Donald Delaware Co from texas. Publicly traded. Employment agreement provides that Donald is responsible for the general management of the
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This note was uploaded on 10/18/2011 for the course LAW 700 taught by Professor Kim during the Spring '10 term at USC.

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Shareholder derivative actions - Shareholder derivative...

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