[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

_________ ________________ No. 18

- 15303

_________________________ Docket No: 9:17

- cv - 80940

- R LR ROBERT FREEDMAN, individually and on behalf of all others similarly situated, Plaintiff

- Appellant,

versu s 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 ) Case: 18-15303 Date Filed: 06/25/2020 Page: 1 of 252 Before NEWSOM , TJOFLAT , Circuit Judges, and PROCTOR * , District Judge. PROCTOR, District Judge: Appellant Robert Freedman ( “Freedman”) is a shareholder of one of the Appellee s, m agicJack Vocaltec Ltd. (“ m agicJack”). 1 Freedman filed a putative class action complaint against m agicJack and eight individuals who were magicJack current or former directors

. In his class allegations, Freedman claimed that m agicJack 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 t his a ppeal, Freedman argues that (1) the operative c omplaint , which here
is his Second Amended Complaint , is direct in nature , and the district court erred in concluding otherwise , and (2) he properly pleaded v iolation s 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 well

reasoned 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 m agicJack is a publicly

- traded company organized under the laws of Israel, with its principal place of business in Florida. The other A ppellees are current or former directors of magicJack. Case: 18-15303 Date Filed: 06/25/2020 Page: 2 of 253 derivative rather than direct in nature.
I. F REEDMAN’S CLASS ALLEGATIONS In th e 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 s hareholders

. The alleged misrepresentation s 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

. S ee DE 59, ¶¶ 2, 23

. The first proxy statement that Freedman challenge s was issued by magicJack

on March 15, 2017 (the “March 15 Proxy”) . DE 61

- 1. Freedman contends that the
statement w as 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 challenge d the following statement in the March 15 Proxy: Your Board and Management are excited about the possibilities for restoring growth at magicJack un der 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 grow ing 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 t he district court pointed out , this language Case: 18-15303 Date Filed: 06/25/2020 Page: 3 of 254 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 P roxy 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 f or the company’s new CEO , Don C. Bell, III (“Bell”), and to approve changes to magicJack’s stock incentive pl ans, 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

- in

control transaction ( i.e. , a sale of magicJack). DE 59, ¶ 51. On November 9, 2017, a fter 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 Prox y 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 c omplaint. See id.

Case: 18-15303 Date Filed: 06/25/2020 Page: 4 of 255 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
transactio n was eventually approved by shareholders. DE 61

- 12 at 2. In his operative c lass a ction c omplaint (the Second Amended Complaint) , Freedman claim ed on behalf of himself and the putative class to have suffered injuries based upon th e misleading information contained in the March 15 and June
23 P rox ies ( i.e. , they were denied the ability to exercise an informed vote)

. DE 59, 29. He also claimed that he and the other shareholders w ere injured due to the $8.71 per share price, which he contends was less than an earlier non

- binding, pre

due 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 c lass a ction c omplaint
aga inst 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 Yaron

Eldar , 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 c omplaint . 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 c omplaint in any fashion

.

Case: 18-15303 Date Filed: 06/25/2020 Page: 5 of 256 59, ¶ 56. In other wor ds, the suit was brought on behalf of a class of shareholders who received the proxy statements at issue in this case

. Id

. Freedman define d 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, t he remaining d efendants moved to dismiss. DE 38 . The district court found that the amended c omplaint was derivative i n nature and dismissed it without prejudice . DE 57 at 3. The court permitted Freedman “one more opportunity to amend.” Id. A lthough it was willing
to extend that grace, the district court warned that i f “[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: “ I f it is [Freedman’s] intent to pursue an individual claim, [his] Complaint should mak e 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 then

remaining defendants , with the except ion of YMax. DE 59. The Second Amended Complaint contains two counts . Th e first count Case: 18-15303 Date Filed: 06/25/2020 Page: 6 of 257 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

- per son liability under Section 20(a) of the Act

. DE 59

.

m agicJack moved to d ismiss the S econd 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, t he 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 parallel s Flo rida law

— the law of the forum state

. S ee DE 64 at 6

. T he 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, t he district c ourt 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

Case: 18-15303 Date Filed: 06/25/2020 Page: 7 of 258 court that Freedman’s claim is clearly a derivative one

. III. STANDARD OF REVIEW
W e review a district court’s dismissal under Federal Rule of Civil Procedur e 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 conclud e that the law of the s tate (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. W h at 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 S econd A mended C omplaint under Federal Rules of Civil P rocedure 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 rea ch the merits of Freedman’s pleading and focused solely on the issue of whether the allegations were direct or derivative . DE 64. This indicate s that dismissal was rendered under Rule 23.1.

Case: 18-15303 Date Filed: 06/25/2020 Page: 8 of 259 body of law must a court look to in determining whether a law suit 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 deter mine 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 l aw 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 ind ependent 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

Case: 18-15303 Date Filed: 06/25/2020 Page: 9 of 2510 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 omi tted) ; 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) ( instructin g “federal courts [to] look to the law of the state where the . . . company is incorporated” to determine whether an action is direct or derivative).
I t is time for our C ourt 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, fe deral 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

Case: 18-15303 Date Filed: 06/25/2020 Page: 10 of 2511 federal statute with state law, the “state law [is] . . . incorporated into fe deral 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 . Th ere 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 cert ainty 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 oth er 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 Ci vil

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)).

Case: 18-15303 Date Filed: 06/25/2020 Page: 11 of 2512 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 t he 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 suggest s , 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, i t 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 . . . .”)

.

Case: 18-15303 Date Filed: 06/25/2020 Page: 12 of 2513 It follows, therefore, that the rule direct ing 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, t he law of the state or place where a company is incorporated establishes the requirements that a shareholder must meet before bringi ng either a direct or derivative claim against a corporation. For instance, i f 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.
U nder Florida’s choice

- of

- law rules

– the relevant state’s laws for choice

- of

law 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).

Case: 18-15303 Date Filed: 06/25/2020 Page: 13 of 2514 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 s tate of incorporati on. 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 pro vide 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 derivati ve, 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.

Case: 18-15303 Date Filed: 06/25/2020 Page: 14 of 2515 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 quot ation 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 cou rts. 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 s ue derivatively because Spain is “the jurisdiction of incorporation of the entity in which the plaintiff owns shares.” Id. at 1081.

Case: 18-15303 Date Filed: 06/25/2020 Page: 15 of 2516 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 tha t 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 explain ed, 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 C ourt or the district court.

Case: 18-15303 Date Filed: 06/25/2020 Page: 16 of 2517 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 th e 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 basi s 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 va lue 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) 523 10

- 11

- 11 Delek Real Estate Ltd. v. Yitzhak (Sharon) Tshuva (2012) (Isr.); 10 DE 61

- 13 at 5 1

. 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

a pplicant 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. Case: 18-15303 Date Filed: 06/25/2020 Page: 17 of 2518 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 mi sleading 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 a pplicant’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 th e company and th e value of its shares, and all the shareholders were damaged to the same degree, u sually

- the shareholder does not have grounds t o a personal claim

. This is secondary d amage reflecting the company’s damages. CA 2967/95 95 Magen & Keshet Ltd. v. Tempo Beer Indus. Ltd. 51(2) L.R. 312 , 330 (1997) (Isr.); DE 61

- 13 at 19

. I n Magen & Keshet Lt d. , the a ppellants were publicly

- held shareholders of

a ppellee, Tempo Beer Industries

. (“Tempo”). DE 61

- 13 at 9 . Appellants filed a

Case: 18-15303 Date Filed: 06/25/2020 Page: 18 of 2519 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 Plasti c into the majority shareh olders 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

. T he district court had ruled that “ the [a] ppellants did not overcome the first hurdle to file a cla ss 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, t he Israeli Civil Appellate Court held that the a ppellants 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 su bsequently 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

Case: 18-15303 Date Filed: 06/25/2020 Page: 19 of 2520 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 t o 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 b ecause magicJack is incorporated under the law s of Israel, see DE 61

- 12 , Israel i law control s our analysis here. But,

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

Case: 18-15303 Date Filed: 06/25/2020 Page: 20 of 2521 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 F reedma n’s claims are derivate in nature

. Under Israeli law , i n 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).
I n 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

Case: 18-15303 Date Filed: 06/25/2020 Page: 21 of 2522 shareholders) suffered. As the United States Supreme Court has held , “[t]he injury which a stockholder suffers from corporate action pursuant to a deceptiv e 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).
T h e conclusion that Freedman’s claim is derivative is reinforced by his fail ure to plead that he personally suffered a special injury , distinct from that experienced by magicJack or its other shareholders

. T he 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 5 23

- 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 sign ificant that Freedman filed this case as a class action. Although not dispositive of the direct vs. derivative issue, even a cursory review

Case: 18-15303 Date Filed: 06/25/2020 Page: 22 of 2523 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 autho rity 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 wa s sold. 13 DE 59 at 29. Freedman also sought damages in the form of

12 We, of course, recognize that in certain cases t here 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 exces sive compensation would necessarily “flow . . . from Case: 18-15303 Date Filed: 06/25/2020 Page: 23 of 2524 the difference between the $8.71 per share buyout offer magicJack accepted an d 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 Dismi ss. 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) conce rns 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] wro ng 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 ) deriva tive 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,

Case: 18-15303 Date Filed: 06/25/2020 Page: 24 of 2525 T he 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.

Case: 18-15303 Date Filed: 06/25/2020 Page: 25 of 25