Alaska

Civil Procedure

Civil Procedure

Rule 23.1 – Derivative Actions By Shareholders

(a) An action may be brought in the right of a domestic or foreign corporation to procure a judgment in its favor by a holder of shares of the corporation of voting trust certificates of the corporation, or of a beneficial interest in shares or certificates of the corporation.
(b) In a derivative action, the complaint shall be verified and shall allege that the plaintiff was a shareholder, of record or beneficially, or the holder of voting trust certificates at the time or during any part of the transaction of which the plaintiff complains or that the plaintiff’s shares or voting trust certificates devolved upon the plaintiff by operation of law from a holder who was a holder at the time or during any part of the transaction complained of. A shareholder who does not meet the requirements of this section may be allowed in the discretion of the court to maintain the action on a preliminary showing to and determination by the court, by motion and after a hearing at which the court considers evidence, by affidavit or testimony, as it considers material, that

(1) there is a strong prima facie case in favor of the claim asserted on behalf of the corporation;
(2) no other similar action has been or is likely to be instituted;
(3) the plaintiff acquired the shares before there was disclosure to the public or to the plaintiff of the wrongdoing of which the plaintiff complains;
(4) unless the action can be maintained the defendant may retain a gain derived from the defendant’s wilful breach of a fiduciary duty; and
(5) the requested relief will not result in unjust enrichment of the corporation or a shareholder of the corporation.
(c) Unless excused on grounds that a majority of the directors is implicated in or under the direct or indirect control of a person who is implicated in the injury to the corporation, before an action in the right of a domestic or foreign corporation is instituted a plaintiff who has standing under (b) of this section shall make a formal demand upon the board to secure the action the plaintiff desires.
(d) If a shareholder fails to make a formal demand under (c) of this section the complaint shall state with particularity the facts establishing excuse under (c) of this section. In a motion to dismiss for failure to make demand on the board the shareholder shall have the burden to establish excuse.
(e) In a case in which demand on the board is made under (c) of this section, a decision by the board that, in its business judgment, the litigation would not be in the best interest of the corporation terminates the right created by (a) of this section.
(f) In a case in which demand on the board is excused under (c) of this section or the decision of the board under (e) of this section is rejected by the court as inconsistent with the directors’ duties of care and loyalty to the corporation, a plaintiff who has standing under (b) of this section shall have the right to commence or continue the action created by (a) of this section. Notwithstanding (c) or (e) of this section, disinterested, noninvolved directors acting as the board or a duly charged board committee may petition the court to dismiss the plaintiff’s action on grounds that in their independent, informed business judgment the action is not in the best interests of the corporation. The petitioners shall have the burden of establishing to the satisfaction of the court their disinterest, independence from any direct or indirect control of defendants in the action, and the informed basis on which they have exercised their asserted business judgment. If the court is satisfied that the petitions are disinterested, independent, and informed it shall then exercise an independent appraisal of the plaintiff’s action to determine whether, considering the welfare of the corporation and relevant issues of public policy, it should dismiss the action.
(g) A shareholder action otherwise in conformity with this section shall not be dismissed because the alleged injury or wrong to the corporation has been ratified by the outstanding shares. A court may consider the fact of ratification in framing any order for relief to which it considers the corporation entitled.
(h) In an action instituted or maintained in the right of a corporation by the holder or holders of record of less than five percent of the outstanding shares of any class of the corporation or of voting trust certificates for these shares, the corporation in whose right the action is brought or the defendants may at any time before final judgment move the court to require the plaintiff to give security for the reasonable expense, including attorney fees, that may be incurred by the moving party. The amount of the security may be increased or decreased from time to time in this discretion of the court upon a showing that the security has become inadequate or excessive. The corporation or other defendants may have recourse to the security in an amount as the court may determine upon the termination of the derivative action, whether or not the court finds the action was brought without reasonable cause.
(i) A derivative action may not be discontinued, abandoned, compromised or settled without the approval of the court having jurisdiction of the action. If the court determines that the interests of the shareholders or any class or classes of shareholders will be substantially affected by a discontinuance, abandonment, compromise, or settlement, the court in its discretion may direct that notice, by publication or otherwise, shall be given to the shareholders or class or classes of shareholders whose interests will be affected. If the court directs notice to be given, it shall determine which of the parties to the action shall bear the expense of giving the notice in an amount the court determines to be reasonable in the circumstances. The amount shall be awarded as special costs of the action.
(j) If the derivative action is successful, in whole or in part, or if anything is received as a result of the judgment, compromise, or settlement of that action, the court may award to the plaintiff or plaintiffs reasonable expenses, including reasonable attorney fees, and shall direct an accounting to the corporation for the remainder of the proceeds. This subsection does not apply to a judgment rendered only for the benefit of injured shareholders and limited to a recovery of the loss or damage sustained by them.

Alaska R. Civ. P. 23.1

Added by SCO 258 effective November 15, 1976; amended by Chief Justice Special Order No. 2052a effective July 1, 1989

Civil Rule 23.1 in its entirety was adopted by the Alaska Legislature in ch. 166, ยงยง 1, 17, SLA 1988, rather than by the Alaska Supreme Court.