Derivative Suit - Demand Requirement - Rule 23.1, Ala. R. Civ. P. - Mandamus Review


Ex parte, Inc., et al., [Ms. 1180262, Mar. 27, 2020] __ So. 3d __ (Ala. 2020). The Court (Stewart, J.; Parker, C.J., and Bolin, Wise, Mendheim, and Mitchell, JJ., concur; Shaw and Sellers, JJ., concur in the result and Bryan, J., dissents) grants a petition for a writ of mandamus directing the Mobile Circuit Court to dismiss a shareholder’s derivative suit for failure to comply with the demand-requirement of Rule 23.1, Ala. R. Civ. P.

While reiterating the concept that standing plays no role in private law cases, the Court holds that mandamus review is available to review denial of a motion to dismiss predicated on failure to comply with Rule 23.1:

... Rule 23.1 logically requires a threshold determination, and an avenue for mandamus review, as to whether the derivative action may be maintained by the plaintiff before any decision is made regarding whether to proceed toward litigation on the merits. There is no procedure for appealing from a wrongful determination of that issue before the entry of a final judgment on the merits. In other words, the only alternative to mandamus review would be for the corporation whose rights are at issue to appeal after a final judgment has been entered on the merits. Such an appeal obviously is not adequate to protect the corporation’s right to prevent the maintenance of a derivative action by one who does not fairly and adequately represent the interests of the shareholders because the action will have been maintained by the time the corporation can file an appeal.

Ms. *18.

The Court granted the writ directing dismissal of the action upon concluding that the action was in fact derivative in nature:

Hale has alleged injuries in support of her claims that “‘“fall[] directly on the corporation as a whole and collectively, but only secondarily, upon its stockholders as a function of and in proportion to their pro rata investment in the corporation.”’” Ex parte Regions Fin. Corp., 67 So. 3d [45, 55 (Ala. 2010)] (interpreting Delaware law and quoting In re Triarc Cos., 791 A.2d 872, 878 (Del. Ch. 2001), quoting in turn Donald J. Wolfe and Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery §9-2, at 516 (1998)). We, therefore, conclude that Hale’s ultra vires claims, breach-of-fiduciary-duty claim, and breach-of-contract claim are derivative claims that were asserted on behalf of BAN [Bay Area Nutrition, Inc.].

Ms. *23-24.

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