Florida’s New Business Corporation Act Establishes the State as a “Demand Futility” State for Shareholder Derivative Actions


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

(2) Either:

(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.
 

About Faruqi & Faruqi, LLP

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.

Since its founding in 1995, Faruqi & Faruqi, LLP has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, direct purchasers, consumers and employees.

To schedule a free consultation with our attorneys and to learn more about your legal rights, call our offices today at (877) 247-4292 or (212) 983-9330.

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.

Tags: faruqi & faruqi, investigation, news, litigation, settlement notice, case, faruqi law, faruqi blog, faruqilaw, Christopher M. Lash, derivative litigation Christopher M. Lash Christopher M. Lash
Associate at Faruqi & Faruqi, LLP

Pennsylvania office
Tel: (215) 277-5770
Fax: (215) 277-5771
E-mail: clash@faruqilaw.com

Finding us

Our Offices


Our offices are nationwide. If you have any questions about a case or our firm, please contact us.

New York

685 Third Avenue 26th Floor
New York, New York 10017
(212) 983-9330
(877) 247-4292
(212) 983-9331

California

10866 Wilshire Boulevard Suite 1470
Los Angeles, California 90024
(424) 256-2884
(424) 256-2885

Delaware

3828 Kennett Pike Suite 201
Wilmington, Delaware 19807
(302) 482-3182
(302) 482-3612

Georgia

3975 Roswell Rd Suite A
Atlanta, Georgia 30342
(404) 847-0617
(404) 506-9534

Pennsylvania

1617 JFK Boulevard, Suite 1550
Philadelphia, Pennsylvania 19103
(215) 277-5770
(215) 277-5771

Faruqi & Faruqi office in New York, New York

Faruqi & Faruqi office in Los Angeles, California

Faruqi & Faruqi office in Wilmington, Delaware

Faruqi & Faruqi office in Atlanta, Georgia

Faruqi & Faruqi office in Philadelphia, Pennsylvania