Shareholder Derivative Action Nixed | In Re Schmitz (Tex. 2009)

TEXAS SUPREME COURT WIELDS MANDAMUS AXE TO KILL SHAREHOLDER DERIVATIVE SUIT

What is a sufficient presuit demand? - Supremes won't tell, but know it when they don't see it.

In Re Schmitz, (Tex 2009)

Mandamus issued to require trial court to dismiss shareholder derivative action on ground that presuit letter demanding that a buyout offer at $23 a share be seriously entertained (and pending deal at $22 a share be put on hold) was too vague; but Court wont' tell what a sufficiently particularized demand letter would look like. Apparently that is to be determined on a case-by-case basis.

For purposes of nixing the action at hand, the Court opines that the demand letter was not detailed enough and should not have been made anonymously. Never mind that the statute does not require that the shareholder be identified by name. So much for statutory (re)construction on this occasion. Fact scenarios in future cases may be deserving of a different rationale.

AS SUMMED UP BY JUSTICE BRISTER: We do not attempt today to explore all the ways in which a demand might or might not meet article 5.14’s “with particularity” requirement. Whether a demand is specific enough will depend on the circumstances of the corporation, the board, and the transaction involved in the complaint. But given the size of this corporation and the nature of this transaction, this demand was clearly inadequate.

Freely paraphrased: We don't like class actions and shareholder suits and will find a reason to undo them. Count on it! If everything else fails, we'll delve into the totality of the circumstances.

In Re Schmitz, No. 07-0581 (Tex. May 22, 2009)(Brister)(criteria for mandamus relief, shareholder derivative suit, sufficiency of pre-suit demand letter, adequacy of appellate remedy after final judgment)
IN RE HAROLD R. SCHMITZ, ET AL.; from Bexar County; 4th district (04-07-00359-CV, ___ SW3d ___, 07-11-07) The Court conditionally grants the petition for writ of mandamus. Justice Scott A. Brister delivered the opinion of the Court. (Chief Justice Jefferson not sitting)