Opinion ID: 2556088
Heading Depth: 1
Heading Rank: 2

Heading: The California Derivative Complaint

Text: King beneficially owns 3000 VeriFone shares, of which he has held at least 500 since December 11, 2006. On December 14, 2007, King filed a stockholder derivative action on behalf of VeriFone against certain of its officers and members of its board of directors (Board) in the California Federal Court. Three other federal derivative actions followed. All four cases were consolidated, and the California Federal Court appointed King as lead plaintiff. On October 31, 2008, King filed a consolidated amended derivative complaint in the California Federal Court action, claiming that various VeriFone officers and directors had committed breaches of fiduciary duty and corporate waste. Specifically, King alleged that VeriFone's officers and Board had: (a) made materially false financial statements to the SEC and the public; (b) abdicated their fiduciary duties by allowing VeriFone to operate with material weaknesses in its internal controls over financial reporting, while representing publicly that the company had effective internal controls; and (c) allowed eight VeriFone directors and/or officers, while possessing material insider information, to sell over 12.4 million of their VeriFone shares for a $462 million dollar profit. [4] VeriFone moved to dismiss King's consolidated complaint for failure to make a pre-suit demand upon its Board, as required by Federal Rule of Civil Procedure (FRCP) 23.1(b)(3). [5] On May 26, 2009, the California Federal Court granted VeriFone's motion, holding that King's consolidated complaint failed to allege particularized facts that would excuse a pre-suit demand. [6] That dismissal was without prejudice. [7] In granting leave to amend the complaint, the California Federal Court suggested that King first engage in further investigation to assert additional particularized facts by filing a Section 220 action in Delaware. [8] In that regard, the California Federal Court observed that: Since [King's] purpose is to obtain the particularized facts needed to adequately allege demand futility and to show corporate wrongdoing, rather than to investigate new potential claims, [King] should gain access to certain of VeriFone's documents and records for the Relevant Period. [9] On June 9, 2009, King submitted to VeriFone a written demand to inspect specified categories of documents. The parties were able to resolve all of King's requests except onethe Audit Committee Report (Audit Report), which contained the results of an internal investigation of VeriFone's accounting and financial controls that had been conducted after the December 3, 2007 restatement announcement. [10]