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Keywords

plaintiffdefendantlitigationpleamotionfiduciaryclass actionfiduciary duty

plaintiffmotioncorporation

Related Cases

Seidel v. Public Service Co. of New Hampshire, 616 F.Supp. 1342, Fed. Sec. L. Rep. P 92,383

Facts

The actions were brought by shareholders of PSNH in response to the company's efforts to construct a nuclear power plant in Seabrook, New Hampshire. The plaintiffs included both derivative and class action claims, with various allegations against the company's directors and officers regarding breaches of fiduciary duty and securities law violations. The court consolidated the cases for convenience and examined the sufficiency of the complaints in light of the applicable legal standards.

These fourteen actions, consolidated for convenience, have been brought by irate shareholders of Public Service Company of New Hampshire (“PSNH”). Their source is to be found in the efforts of PSNH, the largest electrical utility in New Hampshire, to construct a nuclear power plant in Seabrook, New Hampshire.

Issue

The main legal issues included whether the derivative actions complied with the demand requirements of Rule 23.1 and whether the class action claims sufficiently stated a cause of action under federal securities laws.

The only demand filed by a shareholder prior to commencement of the derivative actions was insufficient.

Rule

The court applied Rule 23.1, which requires that derivative actions must allege with particularity the efforts made by the plaintiff to obtain the desired action from the directors and the reasons for the failure to obtain such action. Additionally, the court considered the pleading standards under the Securities Exchange Act and the Securities Act.

In a derivative action brought by one or more shareholders or members to enforce a right of a corporation or of an unincorporated association, the corporation or association having failed to enforce a right which may properly be asserted by it, the complaint shall be verified and shall allege (1) that the plaintiff was a shareholder or member at the time of the transaction of which he complains or that his share or membership thereafter devolved on him by operation of law.

Analysis

The court found that the derivative actions did not meet the demand requirements of Rule 23.1, as the initial complaints failed to adequately allege the efforts made to demand action from the directors. The court emphasized that mere conclusory statements about futility were insufficient. In contrast, the class action claims were found to comply with the pleading requirements, as they adequately alleged misleading statements and omissions related to the securities offered by PSNH.

The initial complaint here filed, that of Zucker Associates, made no reference to any demand, merely stating in conclusory terms that plaintiff believed such demand would be futile.

Conclusion

The court granted the motions to dismiss the derivative actions without prejudice due to failure to comply with Rule 23.1, while denying the motions to dismiss the class action claims based on the sufficiency of the pleadings under federal securities laws.

Accordingly, the Court finds and rules that all of the derivative actions herein fail to meet the demand requirements of Rule 23.1 within the mandate of the rules of law set down by the First Circuit, and, accordingly, each of such derivative actions is herewith dismissed without prejudice.

Who won?

The defendants prevailed in the derivative actions because the court found that the plaintiffs failed to meet the prelitigation demand requirements, leading to the dismissal of those claims.

Motions granted in part and denied in part.

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