Freedman v. MajicJack Vocaltec Ltd., No. 18-15303 (11th Cir. 2020)Annotate this Case
Plaintiff, a shareholder, filed a putative class action complaint against magicJack and eight individuals who were magicJack current or former directors. Plaintiff alleged that magicJack issued two proxy statements that contained material misrepresentations. The district court dismissed plaintiff's lawsuit because his claims were derivative in nature and he failed to plead that he made a demand on magicJack or that doing so would have been futile.
The Eleventh Circuit held that federal courts should look to state law to decide the issue of whether a claim brought under a federal statute is direct or derivative. In this case, because magicJack is incorporated under the laws of Israel, Israeli law controls the court's analysis. However, even if the court applied Florida law, the result would be the same because the two bodies of law are consistent. The court held that plaintiff's claims are derivative in nature because he failed to allege that he suffered damages independent of the damages that magicJack (and all of its shareholders) suffered. Furthermore, plaintiff failed to plead that he personally suffered a special injury, distinct from that experienced by magicJack or its other shareholders. Finally, any recovery sought in the Second Amended Complaint would necessarily be for the benefit of magicJack and its shareholders.