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Volume XIII, Number 32

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Nevada Supreme Court Finds California Precedent "Persuasive" In Appeal Of Derivative Action

What, if any, is the standing of a corporation in a derivative action?  Until this month, that question was yet to be addressed by the Nevada Supreme Court.  We now have an answer.

In Cotter ex rel. Reading Int'l, Inc. v. Kane, 136 Nev. Adv. Rep. 63 (2020), the Nevada Supreme Court held that "a corporate nominal defendant in a derivative action cannot challenge or defend the underlying merits of that action, but may challenge a shareholder plaintiffs standing to bring a derivative suit."  In reaching this decision, the Court found persuasive Justice Raymond Ikola's holding in Patrick v. Alacer Corp., 167 Cal. App. 4th 995,  84 Cal. Rptr. 3d 642 (2008).  

The Nevada Supreme also determined that the plaintiff lacked standing because he did not adequately represent shareholders.  In making this determination, the Court expressly adopted the eight factors established by the Ninth Circuit Court of Appeals in Larson v. Dumke, 900 F.2d 1363, 1367 (1990).  According to the Court, the plaintiff's interests diverged from other shareholders because one of the main remedies that he sought was reinstatement as Chief Executive Officer of the corporation.  The Court also noted that the derivative action appeared to be "vindictively sought".  

© 2010-2023 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume X, Number 287
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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