§23.1.7 Significant Authorities

• Jurisdiction: Washington

§23.1.7SIGNIFICANT AUTHORITIES

Significant authorities construing CR 23.1 and Fed. R. Civ. P. 23.1 are set out below.

(1)Generally

A leading Washington case describing the basic nature and characteristics of the shareholder derivative action is Goodwin v. Castleton,19 Wn.2d 748,144 P.2d 725 (1944), which involved an action brought by a stockholder of a mining corporation seeking specific performance of a contract alleged to have been entered into between the corporation and a partnership for interests in valuable mining properties. The plaintiff alleged conflict of interest and self-dealing by certain corporate officers who also controlled the partnership. The suit eventually involved more than one group of shareholders requesting different relief. Prior to trial, a proposal to settle the underlying dispute was made to the corporation's directors by defendant/directors and was accepted by vote of the directors and by vote of an overwhelming majority of shareholders (without the individual defendants having participated in either vote). The defendants then proposed approval by the court of the settlement and dismissal of the derivative action. After a two-week trial on the fairness and adequacy of the settlement, the trial court approved the settlement and dismissed the action. The principal shareholder/plaintiff appealed, arguing that settlement could not be entered without plaintiff's approval.

The Supreme Court in Goodwin upheld the trial court dismissal, reasoning that a shareholder derivative action was not within the sole control of a shareholder/plaintiff and that the trial court had correctly exercised its responsibility to determine whether the settlement was in the best interests of the corporation and all shareholders. The case dramatically demonstrates the secondary or derivative nature of such actions and the important distinction between the individual interests of a shareholder/plaintiff and the broader interests of the corporation and its shareholders as a whole.

Perhaps the most thorough discussion of the basic requirements and principles applicable to shareholder actions under the modern rule is the opinion in LaHue v. Keystone Inv. Co.,6 Wn.App. 765, 496 P.2d 343, review denied, 81 Wn.2d 1003 (1972).

(2)Key cases on specific issues

Significant authorities related to specific aspects of rule 23.1 are set out below.

(a)Procedural issues

The provisions of CR 23.1 supersede those of former RCW 23A.08.460 (repealed 1989) (now codified at RCW 23B.07.400) to the extent that they are inconsistent. LaHue,6 Wn.App. 765.

The purpose of CR 23.1 is to establish the procedures governing suits in equity by one or more shareholders of a corporation or members of an association to enforce rights of the corporation or association that the entity fails, refuses, or is unable to assert itself. LaHue,6 Wn.App. 765.

The court will determine a plaintiff's standing to bring a derivative action based on the facts alleged in the complaint. Huntington v. Fraternity Snoqualmie, Inc., 86 Wn.App. 1093, No. 38446-5-1, 1997 WL 401593, at *11 (July 14, 1997) (unpublished).

Suits under CR 23.1 are not subject to the more detailed procedural requirements applicable generally to class actions under CR 23. LaHue,6 Wn.App. 765.

Courts generally view a...