On January 1, 2020, the new Florida Business Corporation Act (the “Act”) became effective. The Act contains provisions establishing Florida as a “demand futility” state in relation to shareholder derivative litigation. Specifically, the revised statute provides:
A complaint in a proceeding brought in the right of a corporation must be verified and allege with particularity:
(1) The demand, if any, made to obtain the action desired by the shareholder from the board of directors; and
(a) If such a demand was made, that the demand was refused, rejected, or ignored by the board of directors prior to the expiration of 90 days from the date the demand was made;
(b) If such a demand was made, why irreparable injury to the corporation or misapplication or waste of corporate assets causing material injury to the corporation would result by waiting for the expiration of a 90-day period from the date the demand was made; or
(c) The reason or reasons the shareholder did not make the effort to obtain the desired action from the board of directors or comparable authority.
Fla. Stat. § 607.0742 amended by 2019 Fla. Laws, ch. 90, § 74, eff. 1/1/2020.
Prior to the 2020 revision, Florida law mandated a presuit demand. Specifically, “[a] complaint in a proceeding brought in the right of a corporation must be verified and allege with particularity the demand made to obtain action by the board of directors….” Fla. Stat. § 607.07401(2) (2019). Additionally, shareholders wishing to bring a suit against a board of directors were required to allege with particularity “that the demand was refused or ignored by the board of directors for a period of at least 90 days from the first demand unless, prior to the expiration of the 90 days, the person was notified in writing that the corporation rejected the demand, or unless irreparable injury to the corporation would result by waiting for the expiration of the 90-day period.” Id.
The addition of subsection (c) permits a shareholder to initiate a derivative action prior to making a demand on the board provided that the complaint “allege[s] with particularity” the “reason or reasons the shareholder did not make the effort to obtain the desired action from the board of directors or comparable authority.” Fla. Stat. § 607.0742 (2020). Moreover, the related staff analysis of the proposed bill noted that the addition of subsection (c) would “[a]llow a shareholder to initiate a derivative action without waiting 90 days for the corporation to respond to his or demand, if the shareholder is able to prove that such demand is futile.” Staff of Fla. H.R. Comm. On Judiciary, CS/CS/HB 1009 (2020) Staff Analysis 9 (Apr. 18, 2019).
Although Florida is now statutorily a “demand futility” state, the question remains as to how Florida courts will interpret and apply subsection (c). While it is possible, and even likely, that the Florida courts will look to Delaware and follow the exacting standards established by the Delaware courts, until a decision is rendered on demand futility in Florida the question of application and interpretation of subsection (c) will remain unanswered.
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Faruqi & Faruqi, LLP focuses on complex civil litigation, including securities, antitrust, wage and hour, personal injury and consumer class actions as well as shareholder derivative and merger and transactional litigation. The firm is headquartered in New York, and maintains offices in California, Delaware, Georgia and Pennsylvania.
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About Christopher M. Lash
Christopher M. Lash's practice is focused on shareholder derivative and securities litigation. Chris is an Associate in the firm's Pennsylvania office.