In a recent opinion by the United States District Court for the
District of Maryland, the Court dismissed a shareholder derivative
action against a Maryland corporation and certain of its officers
and directors because the plaintiff failed to make a pre-suit
demand for litigation on the corporation's Board of Directors,
and failed to allege facts showing that such a demand would be
futile. Weinberg v. Gold, 2012 WL 812348, Civil No.
1:11-cv-3116-JKB (D. Md. Mar. 12, 2012). The plaintiff
alleged that the company's compensation committee and Board of
Directors had breached their fiduciary duties to the company and
its shareholders by approving an executive compensation
The Court rejected all of the plaintiff's arguments in favor of
excusing pre-suit demand as futile under Maryland law, and held as
In considering whether a shareholder derivative complaint
adequately alleges demand futility, a court's focus is limited
to whether a majority of the directors "are so personally and
directly conflicted" that they cannot be expected to respond
to a pre-suit demand in good faith; the court must refrain from
analyzing the substance of the claims.
A shareholder advisory vote disapproving an executive
compensation plan -- a so-called say on pay vote -- is not a
substitute for a formal pre-suit shareholder demand. Although
a say on pay vote "may be reasonably considered as a factor in
the demand futility analysis," it does not constitute a
pre-suit demand and does not by itself demonstrate that demand
would be futile.
An officer's or director's participation in the
underlying transaction, or status as a defendant in the derivative
lawsuit, does not disqualify that officer or director from
considering a pre-suit demand and, thus, does not make demand
The U.S. District Court of Maryland, in the Weinberg
opinion, provides a thorough analysis of Maryland law in this area
of shareholder derivative litigation and appears to be the first
court to consider the impact of a say on pay vote in alleging
demand futility under Maryland law. Weinberg
reaffirms the strong Maryland policy of requiring a shareholder to
make a pre-suit demand prior to initiating derivative
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Since the Regulation A+ effective date last month, a number of websites have emerged that promote "Regulation A+ crowdfunding" contributing even further to the confusion in the market regarding "crowdfunding."