Tindall v. First Solar Inc., No. 17-15185 (9th Cir. 2018)
Annotate this CaseThe Ninth Circuit affirmed the dismissal of a shareholder derivative action under Federal Rule of Civil Procedure 23.1 for failure to show demand futility. As a preliminary matter, the panel held that binding authority compelled it to apply abuse of discretion review. The panel applied Delaware law and held that the shareholders failed to show demand futility; the Aronson test did not apply in this case because it was limited to board business decisions; and under the Rales test, demand was not excused.
Court Description: Demand Futility. The panel affirmed the district court’s dismissal of a shareholder derivative action under Fed. R. Civ. P. 23.1 for failure to show demand futility. Shareholders of First Solar, Inc., alleged that officers and directors of the company breached their fiduciary duties by failing to disclose in financial statements and press releases the existence of manufacturing and design defects in First Solar’s solar panels. The shareholders made no demand to the board before bringing the derivative action. Reviewing for an abuse of discretion, and applying Delaware law, the panel held that the shareholders failed to show demand futility. The panel held that the Aronson test for demand futility did not apply because it is limited to board business decisions. Under the Rales test, demand was not excused.
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