Family-Owned Corporation

A forum selection clause is often included in an agreement in order to specify where any later dispute regarding the agreement must be litigated.  In a recent decision, a federal magistrate judge in Ohio denied a defendant’s motion to transfer the venue of a lawsuit from Ohio to California based, in part, on the existence of a forum selection clause identifying Ohio as the venue for any dispute.  See Down-Lite International, Inc. v. Chad Altbaier, No. 1:19cv627, United States District Court, S.D. Ohio, Western Division (August 6, 2019).
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When a shareholder claims that a director or officer has harmed a corporation through his or her improper conduct, these claims typically must be brought through a derivative action, in which the shareholder sues on behalf of the corporation. Ordinarily, however, a corporation’s board of directors has the authority to bring lawsuits on the company’s behalf, for the benefit of all of the shareholders.  Thus, a shareholder who wants the company to pursue claims must first make a demand upon the board to file a lawsuit, unless such a demand would be futile.  As courts in Delaware and elsewhere have determined, so-called “demand futility” may be found where there is a “reasonable doubt that, as of the time the complaint is filed, a majority of the board could have properly exercised [their] independent and disinterested business judgment in responding to a demand.”  In these situations, a demand would be futile because “a shareholder would be effectively asking a majority of the board of directors to cause the corporation to sue themselves.”  If a shareholder attempts to bring a derivative suit without first making a demand or without showing futility, that suit may be dismissed on a motion by the defendants.
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