Opinion ID: 3161633
Heading Depth: 2
Heading Rank: 1

Heading: Written Demand Requirement

Text: ¶31. In general, “an action to redress injuries to a corporation . . . cannot be maintained by a stockholder in his own name, but must be brought by the corporation because the action belongs to the corporation and not the individual stockholders whose rights are merely derivative.” Longanecker v. Diamondhead Country Club, 760 So. 2d 764, 768 (Miss. 2000). A shareholder may not file a derivative action until “[a] written demand has been made upon the corporation . . . .” Miss. Code Ann. § 79-4-7.42 (Rev. 2013). 14 ¶32. Although Mississippi “law impresses upon derivative actions certain pre-trial procedural requisites over and above the norm,” Derouen, 604 So. 2d at 1091, precedent supports excusing the written-demand requirement in a closely held corporation. In Derouen, this Court stated in a footnote that Mississippi follows the view of the Principles of Corporate Governance § 701(d): (d) In the case of a closely held corporation . . . , the [chancery] court in its discretion may treat an action raising derivative claims as a direct action, exempt it from those restrictions and defenses applicable only to derivative actions, and order an individual recovery, if it finds that to do so will not (i) unfairly expose the corporation or the defendants to a multiplicity of actions, (ii) materially prejudice the interests of creditors of the corporation, or (iii) interfere with a fair distribution of the recovery among all interested persons. Derouen, 604 So. 2d at 1091 n.2. (emphasis added). ¶33. “The principal effect of [treating a derivative action as a direct action],” the Court stated, “would be to exempt [the] plaintiff from these procedural hoops [such as demand].” Derouen, 604 So. 2d at 1091 n.2; Principles of Corporate Governance § 701(d), 22 (1992). Thus, for closely held corporations, the chancellor has the discretion to treat a derivative action as a direct action and excuse the plaintiff from the written-demand requirement, as long as the chancellor finds one of the Derouen requirements is met.