Shareholders Suit – Stock Option Plan

Listen to this article

Civil

7^th Circuit Court of Appeals

Officials: POSNER, MANION, and HAMILTON, Circuit Judges.

Shareholders Suit – Stock Option Plan

No. 15-1006 Jan Donnawell v. Daniel Hamburger

Shareholder failure to make demand to corporation to correct alleged violations of Delaware law fatal to action.

“For completeness we’ll comment briefly on another of the district judge’s rulings—his denial of a motion by Milton Pfeiffer to intervene as a plaintiff. Pfeiffer, like Donnawell a stockholder of DeVry Education Group though he owned only one share, worth no more than $50, had filed a stockholder derivative suit, very similar to the present one, in Illinois state court. The suit was dismissed as moot when the company corrected the errors in its administration of the 2005 plan, which was before Donnawell had amended her complaint in the present case to challenge the award of stock options to Hamburger under the 2003 plan. Although it dismissed the suit, the Illinois court awarded Pfeiffer nontrivial attorney’s fees on the ground that his suit had alerted the company to the errors in the administration of the 2005 plan, leading the company to correct them. One might therefore have thought Pfeiffer an appropriate intervenor in the present case. But the district judge denied the motion on the ground that Pfeiffer’s claim was identical to Donnawell’s and Donnawell was adequately representing his legal interest, and so allowing him to intervene would add nothing. Donnawell was dismissed from the case because of her failure to make the required demand on the board of directors, and her dismissal left no one to represent the interest of other shareholders except Pfeiffer. Yet as the district judge noted, Pfeiffer, like Donnawell, had failed to make a demand on the board—and in any event has not appealed the denial of his motion for leave to intervene”

Affirmed.

Full Text

Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.