Thursday, September 28, 2006

Derivative Shareholder Lawsuit Dismissed

Here's a recent Court Opinion that was stumbled across by Satellite Radio TechWorld. It involves a derivative shareholder lawsuit against Madison Dearborn and XM. In this opinion, the US Court of Appeals re-affirmed a lower court's decision to dismiss the lawsuit. Perhaps there are some legal minds here that would be interested in giving an interpretation.

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Anonymous said...

The appeals court affirmed (agreed with) the decision of the trial court to dismiss the law suit because the plaintiff failed to state a claim upon which relief could be granted, under rule 12(b)(6) of the Federal Rules of Civil Procedure. In short, the plaintiff made allegations that the defendants did some things or didn't do some things and that as a result the plaintiff - in this case the shareholders of XM - were injured and entitled to legal relief.

The best example and one learned by almost every first year law student is one involving a car accident where the plaintiff in a lawsuit alleges that defendant drove a car into the back of plainiffs car and that plaintiff was injured. On its face, this seems like a typical case that should get defendant some money.

However, driving a car into the back of another car is not enough. The plaintiff must allege and prove 1) the defendant OWED A DUTY to the plaintiff to operate his car in a safe and lawful manner; 2) the defendant BREACHED THAT DUTY by failing to operate his car in a safe and lawful manner; 3) AS A DIRECT AND PROXIMATE RESULT OF DEFENDANT'S BREACH the accident occurred; and, 4) the PLAINTIFF SUFFERED INJURIES as a DIRECT AND PROXIMATE RESULT OF DEFENDANT'S BREACH.

In ruling on a motion to dismiss, the court assumes that all facts alleged are true, and looks at all facts the plaintiff's favor. In this case it assumes that everything the plaintiff alleged was true and finds any possible way to rule for the plaintiff.

So everything the plaintiff alleged is taken as fact and the court sits back and says, in effect, "So what?" Plaintiff, you haven't shown any reason why you are entitled to relief and go away.

In other words, yes, they did everything you claim, but those actions do not amount to anything legally wrong, given the law as it is written.

Bert said...

Thanks for taking the time to explain this. It is very much appreciated.