Defending Shareholder Derivative Lawsuits in Florida: Understanding Your Legal Rights and Defenses
As a shareholder of a corporation, you have the right to sue on its behalf if you believe the corporation’s management has behaved illegally or against the best interests of the corporation. Such cases are known as “derivative lawsuits” since the shareholder files the complaint in the corporation’s name. These disputes, however, can be complicated, time-consuming, and costly. Furthermore, they can be defended on a variety of grounds. In this blog article, we will go over some of the defenses to a shareholder derivative case that are available under Florida law.
- Failure to Make a Demand. Under Florida law, before a shareholder can bring a derivative lawsuit, they must first make a demand on the corporation’s board of directors to take action. The demand must explain the allegations of misconduct and request that the board take corrective action. The board then has the option to either take action or reject the demand. If the board takes action, the lawsuit becomes unnecessary. If the board rejects the demand, the shareholder can then proceed with the lawsuit. However, if the shareholder fails to make a demand or makes an inadequate demand, the court may dismiss the lawsuit absent a showing of futility. See Fla. Stat. § 607.0741.
- Business Judgment Rule. The business judgment rule is a legal principle that presumes that corporate officers and directors act in good faith and in the best interests of the corporation. As long as the officers and directors act within the scope of their authority, exercise reasonable care, and make informed decisions, the court will generally defer to their judgment. The business judgment rule applies even if the decisions turn out to be unwise or result in financial losses. See La. Liant Inv. Group, Inc. v. Pernas, 826 So. 2d 487, 491 (Fla. 3d DCA 2002).
- Lack of Standing. To file a derivative action in Florida, a shareholder must have standing, which means they must be a current stakeholder at the time of the alleged misconduct. If a shareholder sells their shares or loses their shareholder status before the case is filed, they will lose standing and will be unable to maintain the lawsuit. See Richardson v. Paxson Commc’ns Corp., 645 So. 2d 859, 861 (Fla. 4th DCA 1994).
- Statute of Limitations. Every state has a statute of limitations, which sets a time limit for bringing a lawsuit. If the shareholder waits too long to bring a derivative lawsuit, the court may dismiss the lawsuit as time-barred. The length of the statute of limitations varies by state and by the type of claim being brought. See Fla. Stat. § 95.11.
- Failure to State a Claim. Under Florida law, to survive a motion to dismiss, a shareholder must allege facts sufficient to state a claim for relief. This means that the shareholder must allege facts that, if proven true, would entitle them to a legal remedy. If the shareholder fails to state a claim, the court may dismiss the lawsuit. See McCloskey v. Centex Corp., 707 So. 2d 348, 352 (Fla. 4th DCA 1998).
In conclusion, shareholder derivative lawsuits can be complex and expensive. However, there are various defenses that can be raised to challenge the lawsuit, including failure to make a demand, the business judgment rule, lack of standing, statute of limitations, and failure to state a claim. If you are facing a shareholder derivative lawsuit in Florida, contact one of our experienced attorneys today.