Texas Business Litigation
Gerard G. Pecht, Rodney Acker, Ellen Bush Sessions and Peter A. Stokes
Summer 2010 view as PDF
During the past two years, Texas appellate courts have issued several opinions allowing defendants in shareholder derivative cases to obtain mandamus relief based on the plaintiff ’s failure to satisfy the “demand” or “demand futility” requirements. A derivative plaintiff normally must make pre-suit demand on the company’s board of directors before filing suit. For companies incorporated in Delaware and in other states without a “universal demand” statute, a shareholder may circumvent the demand requirement by pleading particularized facts showing that demand would be futile. As discussed below, Texas appellate courts will not hesitate to police the demand and demand futility requirements through mandamus review if a district court allows a derivative case to proceed before these requirements are satisfied.
For example, in In re Denbury Resources, Inc., the Dallas Court of Appeals granted mandamus relief and directed the district court to grant the defendants’ special exceptions based on the derivative plaintiff ’s failure to plead demand futility under Delaware law. The plaintiff alleged that the directors serving on the company’s compensation committee committed waste and violated their fiduciary duties...
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Gerard G. Pecht
Ellen Bush Sessions
Peter A. Stokes