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Shareholders’ Derivative Action: Is a Pre-suit Demand on the Corporation Required Even if Such a Demand Would be Futile?

The current version of the Florida Revised Business Corporation Act, and specifically Fla. Stat. §607.07401(2) (2019), which became effective January 1, 2020, now allows a shareholder to commence a derivative action by alleging in the complaint that a pre-suit demand on the corporation would be futile and identifying the reasons for the shareholder not making an effort to obtain the action desired from the corporation. Under the current version of Fla. Stat. §607.07401(2), a shareholder’s derivative action cannot be filed unless the shareholder alleges in the complaint that a demand was made to obtain action of the board of directors of the corporation and the demand was refused or ignored for at least 90 days from the first demand, or why irreparable injury to the corporation would result from waiting the 90 day period, which case a shorter period is permitted, or the complaining shareholder alleges that the demand was not made and identifies the reasons why the shareholder did not attempt to make a demand on the board of directors. The language in the prior version of the statute did not contain any exceptions to the pre-suit demand requirement.

As the Third District Court of Appeal recently confirmed in Rappaport v. Scherr, under the prior version of the statute, Florida previously required a pre-suit demand on the board of directors before bringing a shareholders’ derivative action without exception, including no exception for futility. The Third District Court of Appeal clarified that a shareholder’s failure to comply with the statutory pre-suit demand requirement in all cases filed and pending before January 1, 2020, requires dismissal of the shareholder’s derivative action. However, this is no longer the case with all actions filed as of January 1, 2020, as the legislature has now expressly articulated that exceptions to the pre-suit demand requirement are permissible, so long as the reasons are adequately identified in the complaint.

There have been many changes to the Florida Business Corporation Act since January 1, 2020. It is imperative to know which version of the statute applies to your dispute and all the recently adopted Florida Business Corporation Act changes.

Rosenthal Law Group is here to assist you will all your corporate disputes and questions.