Thread,
This following tome provides some of the "ins and outs" of how to potentially deal with Management who is not responding to shareholders concerns, The site is from the law firm who corporations hate, this is all intended to stimulate not to encourage to litigate:
securities.milberg.com
SECFEDCORP s 11.23
3C Sec. & Fed. Corp. Law s 11.23
(TREATISE)
(Publication page references are not available for this document.)
Securities and Federal Corporate Law
Harold S. Bloomenthal
Copyright © 1972 Clark Boardman Company, Ltd. and Sage Hill Publishers, Inc.;
Copyright © 1974-1990 Clark Boardman Company, Ltd.; Copyright (c) 1991-1997
Clark Boardman Callaghan, a division of Thomson Legal Publishing, Inc.
Chapter 11. Fraud on Shareholders and the Federal Securities Laws
s 11.23 CLASS ACTIONS AND DERIVATIVE ACTIONS
(1) Class Actions
Typically, plaintiff alleging that the controlling shareholders have in some manner defrauded the minority shareholders will bring his action as a class action and also derivatively on behalf of the corporation. In most instances, however, in the context of fraud on shareholders generally, a derivative action is the appropriate action. [FN1] This is often the preferable alternative, if for no other reason than to avoid the necessity of satisfying the Birnbaum [FN2] requirement of being a defrauded purchaser or seller. However, there are some situations in which, to the extent damages are an appropriate remedy, a derivative action may no longer be appropriate. This would appear to be the situation where, for example, the shareholders are being forced out under a short-form merger statute. [FN3] It would also appear to be appropriate in those situations in which Section 11 of the Securities Act is the basis for the asserted claim. [FN4]
The usual problems of separating derivative actions from direct actions on behalf of shareholders [FN5] can to a large extent be avoided if the action is based upon violation of the proxy rules since shareholders are in a position to allege an independent claim on their own behalf and on behalf of shareholders similarly situated. [FN6] Nonetheless, there are a number of instances in which a derivative action would appear to be more appropriate as in the Rosenfeld v. Black situation (see 11.19(1)(e)) [FN7] and some courts have discerned a historical preference for derivative actions. [FN8] On the other hand, if the wrongdoer owns a substantial interest in the surviving corporation upon behalf of whom a derivative action would have to be brought it may be more appropriate to allow a class action. [FN9] A derivative action also avoids the necessity of unduly limiting a class because of potential conflicts of interest among various shareholders. [FN10] In some instances class actions and derivative actions have been allowed to proceed simultaneously, [FN11] but it seems that in most instances a choice will ultimately have to be made since otherwise double liability may result. While there may be instances in which courts have not been unduly concerned about such a possibility (see Chapter 9), generally it can be expected that courts will be reluctant to impose double liability. [FN12]
No attempt is made here to discuss class actions in depth. Such actions are discussed in other contexts at Chapters 8 and 9. The revised federal rules provide that in a class action the court is to make the preliminary determination as to whether such an action is appropriate. [FN13] The court in making that determination takes into account whether the questions of law or fact common to the class predominate over individual questions and, here, whether the class action is superior to other available methods for adjudication of the controversy. [FN14] The size of the class to be represented is often a significant consideration in determining the superiority of a class action. [FN15] Courts tend to take restrictive or liberal attitudes toward class actions depending upon their view of such actions as a social instrument, with some courts being overtly hostile, [FN16] although generally the courts have tended to implement the objectives of the liberalized revisions to the rule. [FN17] A requirement imposed by some district courts requiring that the plaintiff establish in a preliminary proceeding a high degree of probability of winning on the merits in order to maintain a class action has not been followed by others and has now been rejected by the Second Circuit. [FN18] Further, the probability of prevailing upon the merits is not a factor in determining which of the parties is to pay the often substantial costs of giving notice to members of the class; such costs must be paid by the plaintiff. [FN19] The courts are divided on whether the denial of a right to maintain a class action is an appealable order with the so-called death knell rule being followed in many jurisdictions. Under that approach, if the denial of a class action virtually assures that the case will not be tried since the amounts sought by the individual plaintiffs are so small as to discourage plaintiff from going to trial without a final determination of the class action issue, the denial is an appealable order. [FN20] Application of the death knell rule permits inquiry into the amount of the claim being asserted, the probable costs of litigation, and even the plaintiff's net worth. [FN21] The Second Circuit, in fact, has been prone to find that plaintiffs with modest claims (e.g., claims totaling $14,000) have viable claims which would be pursued even absent class action certification. [FN22] On the other hand, the Eighth Circuit has concluded that a claim in the approximate amount of $2,500, which would cost approximately $15,000 to litigate, would not be pursued by a plaintiff with a net worth of $75,000 and would require him to borrow on his home in order to pay litigation expenses. [FN23] The Second Circuit also applies a so-called reverse death knell rule which permits defendants an interlocutory appeal of class action certification if they can establish that a reversal of the certification will mean that the individual plaintiffs are not likely to pursue their claim. [FN24] The Ninth Circuit, which follows the death knell rule, has expressly declined to follow the reverse death knell rule. [FN25]
The revised rule has eliminated many of the difficult questions that previously existed concerning the res judicata effect of the decision in a class action and the running of the statute of limitations. [FN26] Under the revised rule, notice must be given to all members of the class and they will be bound by the decision unless they elect to be excluded. [FN27] In the event they elect to be excluded, the statute of limitations will continue to run against their claim. If they do not elect to be excluded, they may be allowed to intervene and to be represented by their own counsel, although there is no requirement that they actually make an appearance. [FN28] In the event judgment is for the class, appropriate steps have to be taken by the members of the class to establish their particular damages and other issues not determined as part of the class action. Reasonable attorney fees are usually allowed, but generally out of the amount recovered for the class. [FN29] Settlements in a class action have to be approved by the court after the giving of notice of the proposed settlement to the members of the class and an opportunity to present objections. [FN30]
DrRisk the footnotes are seperate |
