[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

_________________________

 

No. 18-15303

_________________________

Docket No: 9:17-cv-80940-RLR

ROBERT FREEDMAN, individually 

and on behalf of all others similarly situated, 

Plaintiff - Appellant,

versus

MAGICJACK VOCALTEC LTD., 

an Israeli corporation; 

DON C. BELL III,

GERALD VENTO,

DONALD A. BURNS,

RICHARD HARRIS,

YUEN WAH SING,

ALAN HOWE,

IZHAK GROSS,

TALI YARON-ELDAR,

 Defendants - Appellees.

_____________________

Appeal from the United States District Court

for the Southern District of Florida

_______________________

(June 25, 2020)

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Before NEWSOM, TJOFLAT, Circuit Judges, and PROCTOR*, District Judge.

PROCTOR, District Judge:

Appellant Robert Freedman (“Freedman”) is a shareholder of one of the 

Appellees, magicJack Vocaltec Ltd. (“magicJack”).1 Freedman filed a putative 

class action complaint against magicJack and eight individuals who were 

magicJack current or former directors. In his class allegations, Freedman claimed

that magicJack issued two proxy statements that contained material 

misrepresentations. The district court gave Freedman multiple chances to amend 

his pleadings to state a claim. Ultimately, the court dismissed his lawsuit because 

his claims were derivative in nature and he failed to plead that he made a demand 

on magicJack or that doing so would have been futile. 

In this appeal, Freedman argues that (1) the operative complaint, which here 

is his Second Amended Complaint, is direct in nature, and the district court erred 

in concluding otherwise, and (2) he properly pleaded violations of Section 14(a) of 

the Securities and Exchange Act of 1934 (“the Act”) and Section 20(a) of the Act. 

After careful review, and with the benefit of oral argument, we agree with the wellreasoned analysis of the district court, which concluded the claim at issue was 

* Honorable R. David Proctor, United States District Judge for the Northern District of 

Alabama, sitting by designation.

1 Appellee magicJack is a publicly-traded company organized under the laws of Israel, 

with its principal place of business in Florida. The other Appellees are current or former directors 

of magicJack.

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derivative rather than direct in nature.

I. FREEDMAN’S CLASS ALLEGATIONS

In the district court, Freedman filed a class action complaint alleging that 

magicJack made material misrepresentations and/or omissions in two proxy 

statements that were sent to its shareholders. The alleged misrepresentations relate 

to the valuation and financial prospects of Broadsmart, a company magicJack 

acquired in March 2016 for $40 million, and a compensation package for 

magicJack executives. See DE 59, ¶¶ 2, 23.

The first proxy statement that Freedman challenges was issued by magicJack 

on March 15, 2017 (the “March 15 Proxy”). DE 61-1. Freedman contends that the 

statement was sent in order to solicit votes for a director’s election at the upcoming 

April 19, 2017 shareholder meeting. Id. In particular, in his complaint, Freedman

challenged the following statement in the March 15 Proxy: 

Your Board and Management are excited about the possibilities for 

restoring growth at magicJack under Mr. Bell’s leadership. The seeds 

of change that we planted to evolve the business have already taken 

root and magicJack is well-positioned to harvest the fruits of its labor. 

The opportunity for meaningful future value creation is reflected in 

our growing Broadsmart pipeline, which currently includes large 

enterprise opportunities. This includes active pilots with two large 

North American businesses with thousands of locations, both of which 

would contribute significant monthly recurring revenues. 

DE 61-4 at 4.

2 Freedman claims that this statement was misleading because of 

2 While not material to the analysis here, as the district court pointed out, this language 

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Broadsmart’s diminished value. He further contends that the statements in the 

March 15 Proxy were designed to “entrench” the magicJack directors in office,

seeing as though, due to the deception, “[o]n April 19, 2017, [t]he Individual 

Defendants were elected to the magicJack board.” DE 59, ¶ 36. 

The second challenged proxy statement was issued on June 23, 2017 (the 

“June 23 Proxy”). The June 23 Proxy was sent in advance of a July 31, 2017 

shareholder meeting. DE 61-7. The July 31 meeting was a special meeting to allow

shareholders to vote on an employment agreement for the company’s new CEO, 

Don C. Bell, III (“Bell”), and to approve changes to magicJack’s stock incentive 

plans, compensation policy, and the compensation to be paid to its outside 

directors. DE 59, ¶¶ 48, 51; DE 61-7; DE 61-8. The agreement included financial 

incentives and severance pay provisions tied to the completion of a change-incontrol transaction (i.e., a sale of magicJack). DE 59, ¶ 51.

On November 9, 2017, after these proxy statements were sent, magicJack 

entered into a sale agreement (the “B. Riley Transaction”), which provided that the 

Company would be sold to B. Riley & Co. (“B. Riley”) for a price of $8.71 per 

share. DE 61-11 at 2-3. On February 8, 2018, magicJack issued a proxy statement 

does not appear in the March 15 Proxy itself, but rather in magicJack’s Additional Proxy 

Materials, also issued on March 2017. DE 61-4. This supplement is not cited in the operative 

complaint. See id.

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in connection with a shareholder meeting to be held on March 19, 2018 for the 

purpose of voting on whether to approve the B. Riley Transaction. Id. The 

transaction was eventually approved by shareholders. DE 61-12 at 2. 

In his operative class action complaint (the Second Amended Complaint),

Freedman claimed on behalf of himself and the putative class to have suffered 

injuries based upon the misleading information contained in the March 15 and June 

23 Proxies (i.e., they were denied the ability to exercise an informed vote). DE 59, 

29. He also claimed that he and the other shareholders were injured due to the 

$8.71 per share price, which he contends was less than an earlier non-binding, predue diligence offer of $9.50 per share.

3 DE 59, 29; DE 61-11 at 22-24.

II. PROCEDURAL HISTORY

On August 11, 2017, Freedman filed his initial class action complaint

against two entities, magicJack Vocaltec Ltd. and YMax Corporation (“YMax”),

and nine of magicJack’s current or former directors—Bell, Gerald Vento, Donald 

A. Burns, Richard Harris, Yuen Wah Sing, Alan Howe, Izhak Gross, Tali YaronEldar, and Yoseph Dauber. DE 1. This action was brought on behalf of Freedman 

and a putative class of “all holders of magicJack Vocaltec Ltd. common stock who 

were or will be harmed by Defendants’ actions as described” in the complaint. DE 

3 Freedman does not allege that the proxy statement regarding the B. Riley Transaction 

contained any misleading statements or omissions, and he does not challenge that proxy 

statement in the operative complaint in any fashion.

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59, ¶ 56. In other words, the suit was brought on behalf of a class of shareholders 

who received the proxy statements at issue in this case. Id. Freedman defined the 

putative class as “all purchasers of the common stock of magicJack during the 

Class Period.” DE 59, ¶ 67.

On January 2, 2018, Freedman voluntarily dismissed all claims against 

Yoseph Dauber (“Dauber”) and filed an amended complaint. DE 36, 37. The 

amended complaint continued to assert claims on behalf of a class of shareholders. 

DE 37.

After Freedman amended his class complaint, the remaining defendants 

moved to dismiss. DE 38. The district court found that the amended complaint was 

derivative in nature and dismissed it without prejudice. DE 57 at 3. The court

permitted Freedman “one more opportunity to amend.” Id. Although it was willing 

to extend that grace, the district court warned that if “[Freedman] contends that he 

is bringing an individual claim,” he would be required to amend his pleadings. Id.

at 2. The district court made this point crystal clear: “If it is [Freedman’s] intent to 

pursue an individual claim, [his] Complaint should make it clear that the alleged 

injuries in this case flowed to [him] and not to the . . . corporation.” Id. Freedman 

subsequently filed his Second Amended Complaint against all of the thenremaining defendants, with the exception of YMax. DE 59. 

The Second Amended Complaint contains two counts. The first count 

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purports to state a claim against all Defendants for violations of Section 14(a) of 

the Act and SEC Rule 14a–9. The second count asserts a claim against the 

individual Defendants for control-person liability under Section 20(a) of the Act. 

DE 59.

magicJack moved to dismiss the Second Amended Complaint, arguing that 

the claims were derivative in nature and Freedman had not made a demand on the 

corporation prior to asserting the derivative claim. DE 60. Without addressing the 

merits of the Second Amended Complaint, the district court granted magicJack’s 

motion. The court applied Israeli law because it determined that nation’s law 

controlled, and, in any event, that Israeli law closely parallels Florida law—the law 

of the forum state. See DE 64 at 6. The district court concluded that Freedman’s 

claims were derivative in nature, and that Freedman failed to make a demand on 

magicJack (or, alternatively, allege that such a demand would have been futile). 

Therefore, the district court ruled that the Section 14(a) claim was due to be 

dismissed under Federal Rule of Civil Procedure 23.1. DE 64. And, because the 

Section 14(a) claim was due to be dismissed, the district court also dismissed the 

Section 20(a) control-person liability claim because Freedman had not adequately 

pled the underlying violation (i.e., the Section 14(a) claim). DE 64 at 11. 

The primary issue in this appeal is whether Freedman’s Section 14(a) claim 

is derivative in nature. For the reasons explained below, we agree with the district 

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court that Freedman’s claim is clearly a derivative one.

III. STANDARD OF REVIEW

We review a district court’s dismissal under Federal Rule of Civil Procedure 

23.1 for abuse of discretion.4 Stepak v. Addison, 20 F.3d 398, 402 (11th Cir. 1994)

(citing Rothenberg v. Sec. Mgmt. Co., 667 F.2d 958, 960 (11th Cir. 1982)); see

Peller v. Southern Co., 911 F.2d 1532, 1536 (11th Cir. 1990) (reviewing the denial 

of a Rule 23.1 motion to dismiss for abuse of discretion).

IV. DISCUSSION

We begin our analysis by discussing which body of law supplies the rule

used in determining if a claim such as this one is derivative (as opposed to direct). 

We conclude that the law of the state (or place) of incorporation of the entity sued

supplies that rule of decision, and we explain why that is so. Next, we apply the 

appropriate rule and conclude that, under the circumstances of this case, 

Freedman’s claim is derivative in nature.

A. What Law Supplies the Rule of Decision?

Although courts have weighed in on the issue, our Circuit has not had the 

occasion to directly address the following question in a published decision: Which

4 The court acknowledges that magicJack moved to dismiss Freedman’s Second 

Amended Complaint under Federal Rules of Civil Procedure 9(b), 12(b)(6), and 23.1, 15 U.S.C. 

§ 78u-4(b)(3)(A), and Local Rule 7.1. DE 60 at 1. However, the district court did not reach the 

merits of Freedman’s pleading and focused solely on the issue of whether the allegations were

direct or derivative. DE 64. This indicates that dismissal was rendered under Rule 23.1. 

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body of law must a court look to in determining whether a lawsuit is direct or 

derivative. The Supreme Court has noted that “[u]nder state law, the determination 

whether a derivative representative can initiate a suit without making demand 

typically is made at the outset of the litigation and is based on the application of 

the [s]tate’s futility doctrine to circumstances as they then exist.” Kamen v. 

Kemper Fin. Servs., Inc., 500 U.S. 90, 98, 104 (1991) (citation omitted); see Burks 

v. Lasker, 441 U.S. 471, 478 (1979) (“[T]he first place one must look to determine 

the powers of corporate directors is in the relevant [s]tate’s corporation law.”)

(citations omitted).

Other circuits have recognized that courts must look to the law of the state of 

incorporation to determine whether an action is direct or derivative. E.g., 

Kokocinski ex rel. Medtronic, Inc. v. Collins, 850 F.3d 354, 368 n.4 (8th Cir. 

2017) (“When a derivative suit raises a federal question, the law of the state of 

incorporation “govern[s] the authority of independent directors to discontinue 

derivative suits . . . .”); AHW Inv. P’ship v. Citigroup, Inc., 806 F.3d 695, 699 (2d 

Cir. 2015) (“In diversity cases . . . federal courts look to the laws of the forum state

in deciding issues regarding conflicts of law. . . . Under New York law, we look to

the law of the state of incorporation when adjudicating whether a claim is direct or 

derivative.”) (quotation omitted) (internal quotation marks omitted); Casden v. 

Burns, 306 F. App’x 966, 974 (6th Cir. 2009) (“Whether [the plaintiff’s] claim is 

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direct or derivative is governed by the law of Virginia, [the company’s] state of 

incorporation.”) (citations omitted); In re Abbott Labs. Derivative Shareholders 

Litig., 325 F.3d 795, 803 (7th Cir. 2003) (“Because [the defendant] was 

incorporated under the laws of Illinois, Illinois law applies in determining whether 

a demand may be excused when shareholders file a derivative complaint on behalf 

of the company.”) (citation omitted); Lapidus v. Hecht, 232 F.3d 679, 682 (9th Cir. 

2000) (“[W]e rely upon state law to determine whether the plaintiffs’ claims are 

direct or derivative.”); Boland v. Engle, 113 F.3d 706, 715 (7th Cir. 1997) 

(instructing “federal courts [to] look to the law of the state where the . . . company 

is incorporated” to determine whether an action is direct or derivative).

It is time for our Court to answer this question and to definitively explain 

our reasoning. We begin with the proposition that although federal law provides 

the rule of decision, federal courts should look to state law in deciding the issue of 

whether a particular suit is direct or derivative. See, e.g., Charles Alan Wright & 

Arthur R. Miller, Fed. Prac. & Proc. Civ. § 1821 (3d ed. 2020) (“The question 

whether a particular suit is derivative or direct is not always capable of easy 

resolution. In a diversity action, the determination will be made under state law; in 

suits in which the rights being sued upon stem from federal law, federal law will 

control the issue whether the action is derivative.”). In Kamen v. Kemper Financial 

Services, the Supreme Court observed that when a federal court fills gaps in a 

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federal statute with state law, the “state law [is] . . . incorporated into federal 

common law.” 500 U.S. at 98. So, we look to the law of the state (or place) of 

incorporation to determine whether an action is direct or derivative. There are at 

least two reasons why that is so.

First, “corporate law is overwhelmingly the province of the states.”5 Marsh 

v. Rosenbloom, 499 F.3d 165, 176 (2d Cir. 2007) (citing Kemper, 500 U.S. at 98-

99). One reason for this is that “[a]pplication of [the law of the state of 

incorporation] achieves the need for certainty and predictability of result while 

generally protecting the justified expectations of parties with interests in the 

corporation.” First Nat’l City Bank v. Banco Para El Comercio Exterior de Cuba, 

462 U.S. 611, 621 (1983), superseded by statute on other grounds, Foreign 

Sovereign Immunities Act, Pub. L. No. 114-222, 130 Stat. 853 (2016) (codified as 

amended in 28 U.S.C. §§ 1602-1611), as recognized in Rubin v. Islamic Republic

of Iran, 138 S. Ct. 816 (2018) (citing Restatement (Second) of Conflict of Laws § 

302, Comments a & e (1971)). Further, as the Second Circuit has correctly 

observed:

The Federal Rules of Civil Procedure provide that state law governs a 

corporation’s capacity to be sued, [see Federal Rule of Civil 

5 The court acknowledges that not every aspect of corporation law rests on state law. For 

example, if a state law conflicts with the federal corporate scheme, that law would likely be 

preempted. But, “[f]or preemption to occur in this instance, then, the conflict between state law

and federal policy must be a ‘sharp’ one.” Marsh, 499 F.3d at 178 (citing Boyle v. United Tech. 

Corp., 487 U.S. 500, 507 (1988)). 

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Procedure] 17(b), and the Supreme Court has held that “[h]ow long 

and upon what terms a state-created corporation may continue to exist 

is a matter exclusively of state power,” with the federal government 

“powerless to resurrect a corporation which the state has put out of 

existence for all purposes.”

Marsh, 499 F.3d at 176-77. 

Second, as the Supreme Court has recognized, there is a “presumption that 

state law should be incorporated into federal common law . . . in areas in which 

private parties have entered legal relationships with the expectation that their rights 

and obligations would be governed by state-law standards.” Kamen, 500 U.S. at 98

(citations omitted). Importantly, “[c]orporation law is one such area.” Id.; see

Strougo v. Bassini, 282 F.3d 162, 168 (2d Cir. 2002). As such a presumption 

suggests, these “state-law standards” create the boundaries within which a 

corporation must operate both internally and externally—including the structure of 

corporate governance employed by the corporation. Indeed, it is widely accepted 

that “[c]orporations . . . are creatures of state law, . . . and it is state law which is 

the font of corporate directors’ powers.” Kamen, 500 U.S. at 98-99 (citations 

omitted) (internal quotation marks omitted); see In re Delmarva Sec. Litig., 794 F. 

Supp. 1293, 1301-02 (Del. 1992) (“[C]orporations are creatures of state law, and

. . . except where federal law expressly requires certain responsibilities of directors 

with respect to stockholders, state law governs the internal affairs of the 

corporation . . . .”).

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It follows, therefore, that the rule directing a court to look to the law of the 

state or place of incorporation to answer the “direct vs. derivative” question is a 

logical one. After all, the law of the state or place where a company is incorporated 

establishes the requirements that a shareholder must meet before bringing either a 

direct or derivative claim against a corporation. For instance, if a shareholder 

wishes to bring a derivative claim, he must first make a demand on the corporation. 

See e.g., Instituto de Prevision Militar v. Lehman Bros., Inc., 485 F. Supp. 2d

1340, 1346 (S.D. Fla. 2007) (citing Fed. R. Civ. P. 23.1) (“[A] shareholder

derivative suit is a special type of lawsuit with special requirements, including the 

demand requirement.”). This is a prime example of why a court should look to the 

state or place of incorporation to fill in the gaps of federal law in assessing the 

parties’ rights in corporate litigation. 

Under Florida’s choice-of-law rules – the relevant state’s laws for choice-oflaw purposes here – a court is to adhere to the “internal affairs” doctrine when 

faced with a question concerning corporate powers, as codified in the Florida 

Business Corporation Act.6 See Fla. Stat. § 607.1505; Restatement (Second) of 

Conflict of Laws §§ 302-9 (1971); see also In re Friedlander Capital Mgmt. Corp., 

6 Our Circuit has also analyzed choice-of-law questions by looking to the Restatement 

(Second) of Conflicts of Laws. See Int’l Ins. Co. v. Johns, 874 F.2d 1447, 1458 n.19 (11th Cir. 

1989) (noting that we are comfortable “in applying the Restatement (Second) of Conflicts of 

Laws § 309” in circumstances concerning corporate law).

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411 B.R. 434, 442 (Bankr. S.D. Fla. 2009) (“As to Florida’s choice of law rules, 

[c]laims involving internal affairs of corporations, such as the breach of fiduciary 

duties, are subject to the laws of the state of incorporation.”) (quoting Chatlos 

Found., Inc. v. D’Arata, 882 So. 2d 1021, 1023 (Fla. App. 5th Dist. 2004)) 

(internal quotation marks omitted). The internal affairs doctrine instructs that “the 

extent and nature of [the] relationship between corporation and stockholder, 

corporate officer or director and stockholder[,] and . . . stockholders inter sese” 

should be governed by the laws of the state of incorporation. Mansfield Hardwood 

Lumber Co. v. Johnson, 268 F.2d 317, 321 (5th Cir. 1959);7 see Edgar v. MITE 

Corp., 457 U.S. 624, 645 (1982) (holding that “matters peculiar to the relationships 

among or between the corporation and its current officers, directors, and 

shareholders” are a corporation’s internal affairs). Thus, under Florida law, the 

place of incorporation (here, Israel) would provide the pertinent rule of law in 

deciding this issue. Other courts in our Circuit have reached this same conclusion.

For example, in Gadd v. Pearson, 351 F. Supp. 895 (M.D. Fla. 1972), the 

defendants were former directors of British-American Bank, Ltd., which was 

incorporated under the laws of the Bahamas. Id. at 898. Faced with the question of 

what law determines whether a claim is direct or derivative, the district court 

7 In Bonner v. City of Pritchard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), this 

Circuit adopted as binding precedent all decisions of the former Fifth Circuit handed down prior 

to the close of business on September 30, 1981.

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concluded that “Bahamian law [the law of the state of incorporation] will apply in 

determining the status of plaintiff and the nature of the action as derivative or 

direct.”8 Id. at 902. 

Requiring a shareholder to make a demand on the corporation before filing 

suit on its behalf (i.e., a derivative suit) allows the corporation to exercise its

business judgment and decide whether to accept the demand. When such a demand 

occurs, it allows a company’s board to exercise a duty of care in deciding how to 

respond to it. Of course, that duty of care is unquestionably guided by state law, 

because state law provides the basis for corporate directors’ powers. Kamen, 500 

U.S. at 98-99 (citations omitted) (internal quotation marks omitted); see also Brody 

v. Chem. Bank, 517 F.2d 932, 934 (2d Cir. 1975) (citing In re Kauffman Mut. 

Funds Actions, 479 F.2d 257, 263 (1st Cir. 1973), cert. denied, 414 U.S. 857 

(1973)) (“[T]he very purpose of the ‘demand’ rule is to give the derivative 

corporation itself the opportunity to take over a suit which was brought on its 

behalf in the first place, and thus to allow the directors the chance to occupy their 

normal status as conductors of the corporation’s affairs.”). A panel of this Court 

has reached the same result, albeit in an unpublished decision. See Conroy on 

8 This same analysis has been utilized by various state supreme courts. For example, in 

Sagarra Inversiones, S.L. v. Cementos Portland Valderrivas, S.A., 34 A.3d 1074 (Del. 2011), the 

Supreme Court of Delaware held that the law of Spain governed the presuit demand 

requirements that the plaintiff must satisfy in order to sue derivatively because Spain is “the 

jurisdiction of incorporation of the entity in which the plaintiff owns shares.” Id. at 1081. 

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behalf of Aflac, Inc. v. Amos, 785 F. App’x 751, 757 (11th Cir. 2019) (“The law of 

the state of incorporation controls the contours of a demand against a

corporation.”).

For these reasons, we hold – as a federal rule of decision – that federal 

courts should look to state law to decide the issue of whether a claim brought under 

a federal statute is direct or derivative. See Kamen, 500 U.S. at 98 (noting that 

when a federal court fills gaps in a federal statute with state law, the “state law [is] 

. . . incorporated into federal common law”).

B. The District Court’s Application of Israeli Law

As we have explained, the question of whether an action is derivative (rather 

than direct) is a question of state law. But, the Second Amended Complaint alleges

that magicJack is an Israeli corporation and was incorporated under Israeli law. DE 

59, ¶¶ 9-10. The district court, therefore, “look[ed] to Israeli law to determine 

whether this action is a [direct or derivative] action, because magicJack is 

incorporated in Israel.” DE 64 at 6. In particular, the district court examined

English translations of two decisions rendered by the courts of Israel that were 

submitted by magicJack and the individual defendants.

9 Therefore, it is necessary 

for us to address the district court’s reliance on those Israeli court decisions below.

9 Freedman has not disputed the authenticity or accuracy of the translations, either in our

Court or the district court. 

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The district court found the District Court of Israel’s decision in Delek Real 

Estate Ltd. v. Yitzha (Sharon) Tshuva to be instructive. In Delek Real Estate, the

Israeli court observed, in relevant part:

The damage caused in the present case, according to the statements in 

the motion, stems from misrepresentations and misleading statements 

that were made mainly by Respondent 3, as CEO of the Company.

The Applicant claimed, as mentioned, that the investigation of the 

Securities Authority and the publication of its findings led to the 

collapse of the Company’s value, to the drop in the value of the 

Company’s shares and to the cumulative damage to the group of 

shareholders.

This damage is common to all the Company’s shareholders. There is no 

basis for the claim that there is a difference between the damage caused 

to some of the shareholders and damage caused to others. . . .

In the end, any misrepresentation and false statements that led, after the 

situation became clear, to the decline in the value of the Company as 

described by the Applicant in the motion – constitutes damage caused 

to the Company and as a result of this, to all shareholders equally.

CA (TA) 52310-11-11 Delek Real Estate Ltd. v. Yitzhak (Sharon) Tshuva (2012) 

(Isr.);10 DE 61-13 at 51. In Delek Real Estate, the “[a]pplicant filed a class action 

in the amount of NIS 720 million and a motion to certify the claim as a class action 

under section 8 (a) or 8 (c) of the Class Actions Law.” DE 61-13 at 32. The 

applicant in that case alleged that:

[D]amage was incurred by the shareholders of the Company as a 

10 We acknowledge that the submitted translation of the Delek Real Estate decision does 

not contain page numbers, while the submitted translation of the Magen & Keshet Ltd. decision

does.

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result of serious acts and omissions performed by the controlling 

shareholder and by the members of the Board of Directors, including a 

series of false and misleading statements that were made in the 

Company’s financial statements and reports, some of which were 

inflated and false valuations and misrepresentations.

Id. at 33. The court denied the applicant’s motion, ruling that any “[m]isleading 

statements and misrepresentations,” which were made to the Company’s 

accountants and “that led . . . to the decline in the value of the Company . . . 

constitutes damage caused to the Company and as a result, to all the shareholders 

equally.” Id. at 34.

Additionally, the district court examined the decision of the Israeli High 

Court (presiding as the Civil Appellate Court) in Magen & Keshet Ltd. v. Tempo 

Beer Indus. Ltd. There, the Israeli appellate court noted that as a “general rule of 

thumb”:

[W]hen a shareholder sustains damage independent of the damage the 

company sustains, he has a personal claim independent of the damage 

the company sustained. However if the damage the shareholder 

sustained was due to the depreciation in value of the company and the 

value of its shares, and all the shareholders were damaged to the same 

degree, usually - the shareholder does not have grounds to a personal 

claim. This is secondary damage reflecting the company’s damages.

CA 2967/9595 Magen & Keshet Ltd. v. Tempo Beer Indus. Ltd. 51(2) L.R. 312, 

330 (1997) (Isr.); DE 61-13 at 19. 

In Magen & Keshet Ltd., the appellants were publicly-held shareholders of 

appellee, Tempo Beer Industries. (“Tempo”). DE 61-13 at 9. Appellants filed a 

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class action against Tempo, challenging its merger with Tempo Plastic. Id. They

claimed that Tempo “deliberately procrastinated” with respect to the merger to 

allow the controlling shareholders to “reap the profits of Tempo Plastic into the 

majority shareholders in Tempo’s pockets instead of ensuring, by the merger, that 

the profits would be transferred to Tempo within a reasonable period of time.” Id.

at 10. The district court had ruled that “the [a]ppellants did not overcome the first 

hurdle to file a class action, i.e., the existence of a personal claim, a condition 

required under Section 54A(a) to the [Securities Law, 5278 – 1968].” Id. On 

appeal, the Israeli Civil Appellate Court held that the appellants had not established 

a “personal claim,” which would have allowed them to bring the lawsuit directly, 

because the injury they suffered was also suffered by the corporation. Id. at 18, 26.

To be clear, the result reached by the district court, and the result we reach 

here, is not an anomaly driven by the application of Israeli law, which is wholly 

consistent with Florida law on the key issue in this case. That is, Florida law 

similarly limits when a shareholder action may be brought directly, as opposed to 

derivatively, against a corporation. A direct action may be maintained only where 

“(1) there is a direct harm to the shareholder or member such that the alleged injury 

does not flow subsequently from an initial harm to the company, and (2) there is a 

special injury to the shareholder or member that is separate and distinct from those 

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sustained by the other shareholders or members.”11 Dinuro Invs., LLC v. Camacho, 

141 So. 3d 731, 739-40 (Fla. 3d DCA 2014). See also Strazzulla v. Riverside 

Banking Co., 175 So. 3d 879, 884-85 (Fla. 4th DCA 2015) (“After reviewing prior 

cases in our district, we agree with the Third District and adopt a two-prong test as 

follows: In order for shareholders to bring a direct action in their individual 

capacity, the shareholders must allege both a direct harm and special injury.”).

Furthermore, under Florida law, “[a]bsent proof that foreign law differs from 

that of [the forum state], the [c]ourt is entitled to presume it is the same.” Pycsa 

Panama, S.A. v. Tensar Earth Techs., Inc., 625 F. Supp. 2d 1198, 1252 (S.D. Fla. 

2008) (citing Nicole v. Nicole–Sauri (In re Estate of Santos), 648 So. 2d 277, 284 

(Fla. 4th DCA 1995) (“[U]nder a principle of choice-of-laws doctrine, absent proof 

that foreign law is different from the law of Florida, the court is entitled to presume 

it is the same.”). 

For all of these reasons, we conclude that because magicJack is incorporated 

under the laws of Israel, see DE 61-12, Israeli law controls our analysis here. But, 

11 We do note that Israeli law appears unsettled as to a “special injury” requirement. 

However, as the district court correctly noted, where a foreign law applies, but is not fully settled 

or addressed, courts generally apply the law of the forum state. See DE 64 at 7 n.2 (citing Mut. 

Serv. Ins. Co. v. Frit Indus., Inc., 358 F.3d 1312, 1321 (11th Cir. 2004) (“[W]here either no 

information, or else insufficient information, has been obtained about the foreign law, the forum 

will usually decide the case in accordance with its own local law except when to do so would not 

meet the needs of the case or would not be in the interests of justice.”) (quoting Restatement 

(Second) of Conflicts of Laws § 136, cmt. h (1971)). Thus, we apply Florida law on this issue. 

Florida law requires a special injury. See Strazzulla, 175 So. 3d at 884-85.

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even if we applied Florida law, the result would be the same because the two 

bodies of law are consistent.

C. Application of the Appropriate Rule

Determining whether a claim is direct or derivative does not depend on the 

label given by the plaintiff; instead, such a determination depends on the nature of 

the claims raised in the complaint. We conclude that Freedman’s claims are 

derivate in nature. 

Under Israeli law, in order to bring a direct claim, a shareholder must 

“sustain damage independent of the damage the company sustains.” CA 2967/9595 

Magen & Keshet Ltd. v. Tempo Beer Indus. Ltd. 51(2) L.R. 312, 315 (1997) (Isr.); 

DE 61-13 at 4. With direct claims, the relief “flows directly to the stockholders, not 

to the corporation.” Culverhouse v. Paulson & Co. Inc., 791 F.3d 1278, 1280 (11th 

Cir. 2015) (emphasis added) (quotation omitted). 

In contrast, a claim is derivative where “all the shareholders [are generally]

damaged to the same degree,” CA 2967/9595 Magen & Keshet Ltd. v. Tempo Beer 

Indus. Ltd. 51(2) L.R. 312, 315 (1997) (Isr.); DE 61-13 at 4, and “any recovery 

obtained . . . ‘must go to the corporation.’” Culverhouse, 791 F.3d at 1280 (quoting 

Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1036 (Del. 2004)). 

In his Second Amended Complaint, Freedman utterly failed to allege that 

he suffered damages independent of the damages that magicJack (and all of its 

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shareholders) suffered. As the United States Supreme Court has held, “[t]he injury 

which a stockholder suffers from corporate action pursuant to a deceptive proxy 

solicitation ordinarily flows from the damage done to the corporation, rather than 

from the damage inflicted directly upon the stockholder.” J.I. Case Co. v. Borak,

377 U.S. 426, 432 (1964), abrogated on other grounds by Ziglar v. Abbasi, 137 S. 

Ct. 1843 (2017). 

The conclusion that Freedman’s claim is derivative is reinforced by his 

failure to plead that he personally suffered a special injury, distinct from that 

experienced by magicJack or its other shareholders. The District Court of Israel 

has held that a decline in the value of a company caused by misrepresentations 

and false statements made by officers of a company “constitutes damage caused 

to the [c]ompany and as a result [], to all shareholders equally.” CA 523-11-11 

Gersht v. Tshuva 51(2) L.R. 315 (2012) (Isr.). Florida law is wholly consistent

(again, with the possible exception of the question of “special injury”). See

Strazzulla, 175 So. at 883 (“[T]he examining court must ‘compare the individual 

plaintiff’s alleged injury to those injuries suffered by the other members or 

shareholders of the company and then determine whether the plaintiff’s injury is 

separate and distinct from other members or shareholders.’”) (citation omitted).

It is also significant that Freedman filed this case as a class action. 

Although not dispositive of the direct vs. derivative issue, even a cursory review 

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of the allegations in his Second Amended Complaint indicates that he alleges he 

suffered the same injuries as other shareholders.12 Moreover, Federal Rule of 

Civil Procedure 23.1 parallels Florida law and Israeli law:

[I]n order to bring a derivative suit against a corporation, the 

complaint must . . . state with particularity: (A) any effort by the 

plaintiff to obtain the desired action from the directors or comparable 

authority and, if necessary, from the shareholders or members; and 

(B) the reasons for not obtaining the action or not making the effort.

Fed. R. Civ. P. 23.1; see Staehr v. Alm, 269 F. App’x 888, 891 (11th Cir. 2008). 

Here, Freedman’s Second Amended Complaint is devoid of any allegation that he 

made a demand on magicJack or, alternatively, that doing so would have been 

futile.

Finally, any recovery sought in the Second Amended Complaint would 

necessarily be for the benefit of magicJack and its shareholders. Freedman alleges 

that magicJack’s officers issued the allegedly misleading proxy statements, at 

least in large part, to obtain personal compensation. DE 59, ¶¶ 48, 52. Freedman 

asked the district court to enjoin any payments “caused by or related to the two 

defective proxy statements” and to rescind such payments in the event that 

magicJack was sold.13 DE 59 at 29. Freedman also sought damages in the form of 

12 We, of course, recognize that in certain cases there may be class actions pursued by a 

shareholder on behalf of other shareholders that actually present direct (not derivative) claims. 

This is not one of them.

13 Freedman’s claim related to excessive compensation would necessarily “flow . . . from 

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the difference between the $8.71 per share buyout offer magicJack accepted and 

the $9.50 per share buyout offer magicJack rejected. DE 59 at 29.14 Indubitably, 

each form of requested relief sought by Freedman is derivative in nature, and 

Freedman’s claim is a derivative claim—whether we apply Israeli law or Florida 

law. Freedman was therefore required to make a demand on magicJack or show

why such a demand would have been futile. This he did not do.

V. CONCLUSION

For all of these reasons, we conclude that the district court did not err in 

granting magicJack’s Motion to Dismiss. Because the district court correctly 

concluded that Freedman’s claim was derivative, and thus due to be dismissed, it 

was unnecessary for it to reach the merits of the claims in Freedman’s Second 

Amended Complaint.15

an initial harm to [magicJack, the payor of the compensation].” Dinuro Invs., LLC, 141 So. 3d at 

739. 

14 We note that the claimed damages to the share value are non-recoupable in this action 

because Freedman did not challenge the proxy statement related to the B. Riley Transaction. 

But even if he had, the relief requested (i.e., the buyout share price) concerns a business 

decision made by magicJack’s Board of Directors, and challenging such decision clearly falls 

within the ambit of a derivative lawsuit. See CA 2967/9595 Magen & Keshet Ltd. v. Tempo 

Beer Indus. Ltd. 51(2) L.R. 312, 330 (1997) (Isr.) (“[A] wrong to the incorporated group as a 

whole that depletes or destroys corporate assets and reduces the value of the corporation’s stock 

gives rise to a derivative action.”). DE 61-13 at 19.

15 In Count II of the Second Amended Complaint, Plaintiff purports to state a claim under 

Section 20(a) of the Exchange Act for control-person liability against each Individual Appellee. 

However, “[b]ecause a primary violation of the securities laws [such as a violation of § 14(a)] is 

an essential element of a § 20(a) derivative claim, we have held that a plaintiff adequately pleads

a § 20(a) claim only if the primary violation is adequately pleaded.” Mizzaro v. Home Depot, 

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The decision of the district court is AFFIRMED.

Inc., 544 F.3d 1230, 1237 (11th Cir. 2008) (citations omitted). Here, because Freedman has 

failed to adequately plead a violation of Section 14(a), the district court also did not err in 

dismissing his Section 20(a) claim.

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