Opinion ID: 3214863
Heading Depth: 2
Heading Rank: 2

Heading: Nevada Futility Law

Text: Nevada recognizes the right of an individual shareholder to sue on behalf of the corporation through a shareholder-derivative suit. See Shoen v. SAC Holding Corp., 137 P.3d 1171, 1179 (Nev. 2006). But “because the power to manage the corporation’s affairs resides in the board of directors,” ordinarily “a shareholder must, before filing suit, make a demand on the board . . . to obtain the action that the shareholder desires.” Id. If the board refuses the demand, the shareholder cannot pursue the litigation unless the refusal was wrongful. See HPEV, Inc. v. Spirit Bear Ltd., No. 2:13-cv-01548-JAD-GWF, 2014 WL 6634838, at  (D. Nev. Nov. 21, 2014). See generally Levine v. Smith, 591 A.2d 194, 210–15 (Del. 1991). If, however, a board is undeserving of the typical deference given to its business judgment, Nevada law does not require a presuit demand. “For instance, there is no point in requiring a party to make a demand for corrective action to officers and directors who are swayed by outside interests, which contaminates their ability to conduct the corporation’s affairs.” Shoen, 137 P.3d at 1180. Would-be derivative plaintiffs therefore need not make a demand on the board if they can show demand futility—that is, show that a sufficient number “of the directors had a disqualifying interest in the demand matter or were otherwise unable to act independently [of someone with such an interest].” Id. at 1183 (brackets and internal quotation marks omitted). Demand to a board with an even number of members is futile if at least half are compromised. See Beam ex rel. 10 Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1046 n.8 (Del. 2004) (applying Delaware law; “[i]f three directors of a six person board are not independent and three directors are independent, there is not a majority of independent directors and demand would be futile”).