Derivative Proceedings and Shareholder Class Actions: AB 3123 (2013)

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Requires a written demand be made on the corporation for

Requires a written demand be made on the corporation for derivative suits. The new demand requirement grants the company 90 days to respond and stays all proceedings, including discovery, during this period. It also allows the corporation to move for a stay of proceedings if it is currently conducting an investigation. Raises the amount of ownership in the company that a shareholder must have in order to avoid posting security in any shareholder class action or derivative suit. Requires that the shareholder hold ownership at the time of filing suit and remains a shareholder for the duration of the suit. Next and significantly, the court shall dismiss the case if the corporation moves for  dismissal after specified groups have determined “in good faith, after conducting a reasonable inquiry upon which its conclusions are based, the maintenance of the derivative proceedings is not in the best interest of the corporation.” The specified groups include: (1) a majority vote of shareholders; (2) a majority vote of independent directors; (3) a majority vote of a committee appointed by independent directors; (4) a panel appointed by the court at the request of the corporation. Finally, introduces a fee shifting provision which requires plaintiffs to pay the corporation if the suit was brought without the exercise of reasonable diligence, cause or with improper purpose.

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