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Corporate Derivative Lawsuits & Adequacy of Representation

A corporate derivative lawsuit is a lawsuit brought by shareholder(s) on behalf of a corporation against its director(s). The basis for the underlying lawsuit can be for any number of reasons, but is generally for a director’s breach of fiduciary duty to the corporation (e.g., conflict of interest, business judgment, misused of funds, etc.).  See Hyde Park Amusement Co. v. Mogler, 214 S.W.2d 541, 543 (Mo. 1948). (directors “occupy a fiduciary relation to the corporation and to the stockholders; [t]heir position is one of trust and they are bound to act with fidelity and subordinate their personal interest to the interest of the corporation should there be a conflict”; an officer of director “occupies a position of the highest trust and confidence and the utomst good faith is required of him in the exercised of the powers conferred on him.” Bayne v. Jenkins, 593 S.W.2d 519, 532 (Mo. 1980). Before the merits of a shareholder lawsuit can be reached, a number of procedural prerequisites must be met.

In Missouri, Rule 52.09  mandates that, in order for a shareholder to maintain a derivative action against and on behalf of a corporation, he or she must: (1) have been a shareholder at the time of the complained-of action; (2) have served demand upon the board of directors and, if necessary, the shareholders as a whole; and (3) adequately represent the interests of all shareholders. With respect to item (2), the shareholder must typically demonstrate that all remedies and reasonable efforts within the corporation have been exhausted to illustrate that there is no other avenue for relief. McLesse v. J.C. Nochols Co., 842 S.W.2d 115, 119 (Mo. Ct. App. 1992). There is an exception to this requirement if the shareholder states facts from which it appears that such a demand within the corporation and through corporate channels would have been futile. Saigh ex rel. Anheuser Busch, 396 S.W.2d 9, 17 (Mo. Ct. App. 1965).

With respect to item (3) in Rule 52.09, Missouri courts have not interpreted this requirement to mandate ownership of a minimum number of shares. Dawson v. Dawson, 645 S.W.2d 120 (Mo. Ct. App. 1982). Indeed, the plaintiff need only “fairly and adequately” represent similarly situated shareholders by demonstrating to the Court an intent to vigorously prosecute the matter and to engage counsel to do so. Id.

Contact us with questions about derivative claims, corporations, directors, or shareholders.