G. (§12.52) Demand

• Library: Federal Civil Litigation in Oregon (OSBar) (2009 Ed.)

G. (§12.52) Demand

Perhaps the most critical and most contentious aspect of standing in derivative litigation is the requirement in FRCP 23.1(b)(3) that the complaint allege a demand on the corporation to obtain the action requested ("demand requirement"), and its corollary, the reason why no demand was made ("demand futility"). The Oregon statute contains a similar demand requirement. ORS 60.261(2).

The reasons for the demand requirement under Delaware law has been described as follows: "'[t]he purpose of pre-suit demand is to assure that the stockholder affords the corporation the opportunity to address an alleged wrong without litigation, to decide whether to invest the resources of the corporation in litigation, and to control any litigation which does occur.'" Quantum Tech. Partners II, L.P. v. Altman Browning & Co., 2008 US Dist LEXIS 78330, 2008 WL 4525769 (D Or Oct 2, 2008) (quoting Spiegel v. Buntrock, 571 A2d 767, 773 (Del 1990)).

Although FRCP 23.1(b)(3) imposes the requirement for a demand, the substantive demand requirements and the particularity required for pleading it are a matter of state law. Potter v. Hughes, 546 F3d 1051, 1054 n 1 (9th Cir 2008); Quantum Tech. Partners II, L.P., 2008 US Dist LEXIS 78330, at *23.

Under Delaware law, a court limits its consideration to the particularized facts alleged in the complaint; the burden is thus more onerous than that required to withstand an ordinary motion to dismiss. See Aronson v. Lewis, 473 A2d 805, 813-815 (Del 1984), overruled in part on other grounds, 746 A2d 244 (Del 2000). "Conclusory 'allegations of fact or law [which are] not supported by allegations of specific fact may not be taken as true.'" Levine v. Smith, 591 A2d 194, 207 (Del 1991), overruled in part, 746 A2d 244 (Del 2000) (quoting Grobow v. Perot, 539 A2d 180, 187 (Del 1988), overruled in part, 746 A2d 244 (Del 2000)). Belova v. Sharp, 2008 US Dist LEXIS 19880 at **9-10, 2008 WL 700961 (D Or Mar 13, 2008).

In analyzing the sufficiency of a demand, the court

looks to the sufficiency of the content of the demand and the sufficiency of the authority of those to whom the demand is presented. . . . If either of these elements is lacking, the district court must then inquire whether a demand sufficient in content and presented to sufficient authority would have been futile.

Greenspun v. Del E. Webb Corp., 634 F2d 1204, 1209 (9th Cir 1980).

In Greenspun, the court upheld a dismissal for lack of an adequate demand when demand was...