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Keywords

lawsuitliabilityappealfiduciarycorporationfiduciary duty

liabilityappealcorporation

Related Cases

In re Medtronic, Inc. Shareholder Litigation, 900 N.W.2d 401

Facts

On June 15, 2014, Medtronic, Inc. announced its acquisition of Covidien plc, structured as an inversion, resulting in Medtronic operating as a subsidiary of an Irish company. Shareholders of Medtronic converted their shares into those of the new entity, Medtronic plc, while Covidien shareholders received cash and shares. Steiner, a Medtronic shareholder, alleged that the inversion diluted shareholder interests and imposed capital-gains tax liabilities without compensation, while corporate officers were reimbursed for their excise-tax liabilities. Steiner filed a class-action lawsuit claiming breaches of fiduciary duty and violations of Minnesota corporate and securities laws.

The Amended Complaint specifically alleged the following injuries to Medtronic shareholders: (1) disparate treatment of Medtronic, as compared to Covidien, shareholders; (2) disparate treatment with respect to the tax liability incurred by Medtronic shareholders and the lack of compensation for that liability as compared to the reimbursement paid to Medtronic's officers and directors for their excise-tax liability; (3) violation of provisions of the Minnesota Business Corporation Act that were intended to protect shareholders of Minnesota corporations; (4) the possibility of a 'reduction of shareholders[’] interest in the combined company to 60% causing significant dilution to shareholders[’] interest in New Medtronic.

Issue

Whether the claims asserted by shareholder Kenneth Steiner in a class-action challenge to Medtronic's merger transaction were properly classified as direct or derivative.

The determination of whether shareholder claims are direct or derivative presents a question of law subject to de novo review.

Rule

The test for distinguishing direct from derivative shareholder claims focuses on the nature of the injury alleged to determine to whom any recovery is owed, with direct claims alleging injury to the shareholder and derivative claims alleging injury to the corporation.

The test for distinguishing direct from derivative shareholder claims for purposes of determining the application of Minn. R. Civ. P. 23.09 focuses on the nature of the injury alleged to determine to whom any recovery is owed.

Analysis

The court analyzed the nature of the injuries claimed by Steiner, concluding that the claims related to capital-gains tax liability and dilution of shareholder interests were direct because they harmed the shareholders individually and any recovery would benefit them directly. In contrast, the claims regarding excise-tax reimbursement were deemed derivative as they represented an injury to the corporation, with any recovery going back to Medtronic rather than the shareholders.

We conclude that the claims asserting injuries due to the excise-tax reimbursement are derivative, but the claims asserting injuries due to the capital-gains tax liability and dilution of shareholders’ interests are direct.

Conclusion

The Supreme Court affirmed in part and reversed in part the Court of Appeals' decision, holding that claims related to capital-gains tax liability and dilution of shareholder interests were direct claims, while claims regarding excise-tax reimbursement were derivative. The case was remanded for further proceedings.

For the foregoing reasons, we affirm the court of appeals’ decision in part, reverse in part, and remand to the district court for further proceedings consistent with this opinion.

Who won?

Kenneth Steiner prevailed in part, as the court recognized that his claims regarding capital-gains tax liability and dilution of shareholder interests were direct claims, allowing him to proceed without the procedural requirements for derivative claims.

Steiner asserted that because he alleged injuries suffered by the shareholders, the claims are direct, not derivative, and therefore Rule 23.09 does not apply.

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