Dismissing Derivative Actions in the Federal Courts for Failure to Allege Demand Futility: Choosing a Standard of Appellate Review--Abuse of Discretion or De Novo?

Authors

Andrew S. Hirsch

Abstract

In the federal court system, when the district courts dismiss shareholders¿ derivative actions for failure to allege demand futility, the circuit courts have historically reviewed these dismissals for abuse of discretion. This started to change when the Supreme Court of Delaware converted from deferential to plenary review in 2000. Thereafter, many circuit courts expressed doubt about their historical standard of review. This Comment assembles all the information and analyses necessary for the reader to fully understand the issue and concludes that the courts should preserve the deferential standard. As an intermediate step to this conclusion, this Comment argues that Rule 23.1 of the Federal Rules of Civil Procedure itself--not Rule 12(b)(6) or any other rule--is the proper procedural vehicle for dismissing a case when a plaintiff fails to allege demand futility--the demand futility dismissal. After selecting the vehicle of dismissal, this Comment then turns to the task of assigning a standard of review. To do so, it employs the multifactor test that the Supreme Court handed down in Pierce v. Underwood.

Recommended Citation

Andrew S. Hirsch, Dismissing Derivative Actions in the Federal Courts for Failure to Allege Demand Futility: Choosing a Standard of Appellate Review--Abuse of Discretion or De Novo?, 64 Emory L. J. 201 (2014).
Available at: https://scholarlycommons.law.emory.edu/elj/vol64/iss1/5