Opinion ID: 865135
Heading Depth: 2
Heading Rank: 1

Heading: whether the chancellor erred by refusing to

Text: RECOGNIZE A FUTILITY EXCEPTION TO THE WRITTEN DEMAND REQUIREMENT ¶5. Section 79-4-7.42 of Miss. Code Ann. (Rev. 2001) provides in its entirety: No shareholder may commence a derivative proceeding until: (1) A written demand has been made upon the corporation to take suitable action; and (2) Ninety (90) days have expired from the date the demand was made unless the shareholder has earlier been notified that the demand has been rejected by the corporation or unless irreparable injury to the corporation would result by waiting for the expiration of the ninety-day period. ¶6. Whether a futility exception should be recognized in the application of this written demand requirement is a question of first impression before this Court. It is undisputed in this case that no written demand was ever made to Malaco to take suitable action. Speetjens nevertheless asserted that this derivative action should be allowed to proceed because the “[d]emand as required by Miss. Code Ann. 79-4-7.42 would have been futile” since the directors of Malaco “are in absolute control of the corporation and [they] unlawfully breached their fiduciary duties, usurped corporate opportunities and awarded themselves excessive salaries and extravagant bonuses.” Therefore, Speetjens argued, 7 demand was not a requirement for this action. Speetjens further argued that this Court has never ruled that the prerequisites of section 79-4-7.42 are mandatory for every derivative action. Malaco,2 on the other hand, argued that the plain meaning of section 79-4-7.42 requires written demand in every derivative action suit. The chancellor heard these arguments and held that the shareholders lacked standing to bring this suit on behalf of Malaco because they did not first make written demand on Malaco to take suitable action. In his final judgment, the chancellor found section 79-4-7.42 to be an unambiguous requirement to derivative suits. ¶7. On appeal, Speetjens first argues that other jurisdictions, including Delaware,3 have held that in situations where demand is futile, as would be the case where all the directors are interested, written demand is excused. He also argues that the chancellor incorrectly relied upon Longanecker, 760 So. 2d 764, in which this Court affirmed the trial court’s holding that shareholders who failed to make a written demand as required by Miss. Code Ann. section 79-11-193(3) (Rev. 2001) did not have standing to sue derivatively. Speetjens correctly notes that Longanecker construes Miss. Code Ann. section 79-11-193(3), which 2 Appellees Malaco, Inc.; Thomas J. Couch, Sr.; Stewart M. Madison; Gerald B. Stephenson; Northside Partners; Couch and Madison Partnership; Couch, Madison and Grubman Partnership; Grubman Partnership; W. Burdette Russ; Tann Brown & Russ Co., Ltd.; Robert A. Malouf; Robert A. Malouf Law Firm; Allen J. Grubman; Malaco Inc. Profit Sharing Plan and Trust; Select-O-Hits, Inc. will be referred to collectively as “Malaco” throughout this opinion. 3 Delaware’s demand statute is materially different than Mississippi’s. It expressly states that written demand is required unless reasons are given explaining why this effort was not undertaken. See Del. St. Ch. Ct. R. 23.1 (amended by court order effective February 1, 2006). The statute contained the same exception before the court-ordered amendment. 8 applies to non-profit corporations, whereas Malaco is a for-profit corporation. We agree with Malaco that this distinction is not controlling in the present situation. The wording of the two statutes differs. The requirement of a written demand in section 79-4-7.42 is absolute; the requirement in section 79-11-193(3) is conditional, stating that the complaint must “allege with particularity the demand made, if any, to obtain action by the directors and either why the complainants could not obtain the action or why they did not make the demand.” This distinction inures to the benefit of Malaco. ¶8. Speetjens also points to three places in Longanecker where this Court alluded to a futility exception to written demand. In the first instance, this Court was merely reciting the non-profit corporation’s argument that the Longaneckers, who were shareholders, failed to show they made a written demand or demand would be futile. Longanecker, 760 So. 2d at 768. This Court did not say that a futility exception to the demand requirement exists. In the second instance, this Court cited cases in other jurisdictions which held a demand futility argument was not waived by a failure to raise it as an affirmative defense where the allegation was denied in a responsive pleading. Id. at 769 (citing Renz v. Carota, No. 87CV-487, 1991 WL 165677,  (N.D.N.Y. 1991), aff'd mem. sub nom. Renz v. Beeman, 963 F.2d 1521 (2d Cir. 1992)). Speetjens misinterprets this statement. This Court was simply addressing the shareholders’ argument that the appellee waived any objection to the derivative nature of this action by failing to raise it as an affirmative defense in its answer or by failing to raise it until the eve of trial. Id. at 768. This Court was not making any statement concerning a futility exception. Third, Speetjens cites Longanecker for the 9 proposition that “generally derivative plaintiffs must make written demand . . . .” Id. at 770. However there are other exceptions to written demand that do not involve futility: namely, where the shareholder has already been notified that demand has been rejected by the corporation, and where irreparable injury to the corporation would result. See Miss. Code Ann. § 79-4-7.42. Once again, Speetjens misinterprets this Court’s language in Longanecker. Section 79-4-7.42 is clear on its face. “Where a statute is clear and unambiguous, no further statutory construction is necessary and the statute should be given its plain meaning.” Miller v. Meeks, 762 So. 2d 302, 305 (Miss. 2000). ¶9. Determination of whether Miss. Code Ann. section 79-4-7.42 would be better if it contained an exception for futility, or even how other state courts have interpreted their comparable, but not identical, corporate law statutes is not required of us in the present case. The fact is, Mississippi’s written demand statute does not contain an exception for futility, and unless and until the Legislature decides to include one, it does not exist. Further, this Court will not be alone in this holding. See, e.g., McCann v. McCann, 61 P.3d 585, 591-93 (Idaho 2002) (with the identical demand statute, the Supreme Court of Idaho ruled that there is no exception for futility); Allen ex rel. Allen & Brock Constr. Co. v. Ferrera, 540 S.E.2d 761, 765 (N.C. Ct. App. 2000) (the Court of Appeals of North Carolina held that the identical demand statute did not allow for a futility exception). But see Guarino v. Livery Limited, Inc., No. X04CV030127824, slip op. at 2-3 (Conn. Super. Ct. Nov. 18, 2003); with Tibball v. Galog, No. CV94 0311149S, slip op. at 3 (Conn. Super. Ct. Aug. 25, 1994) (Connecticut courts have interpreted a futility exception into their demand statute, which 10 is identical to Mississippi’s. However, the Connecticut courts have reached this result by citing to cases from other jurisdictions that have significantly different demand statutes). ¶10. Hence, the trial court correctly found that “[s]ome jurisdictions have recognized a futility exception to the written demand prerequisite for filing a derivative action but Mississippi, however, has never recognized a futility exception to the statutory written demand requirement, and this Court will not attempt to fashion one here.” We agree with the chancellor’s sound reasoning. The demand requirement provides an opportunity to correct objectionable actions, without the expense of litigation, and it allows directors and managers to be alerted to and consider the shareholders’ position. Although we thoroughly reviewed all issues presented, our determination that Speetjens failed to comply with the statutory requirements is dispositive, and thus we decline to address the other issues.