Cotter v. Kane

In this derivative action, the Supreme Court held that a corporation, as a nominal defendant, is precluded from challenging the merits of a derivative action but may challenge a shareholder plaintiff's standing in such an action.

Plaintiff filed a derivative action on behalf of a Corporation challenging conduct by the Corporation's board of directors. The district court granted partial summary judgment against certain directors and then ratified the remaining challenged board conduct. The Supreme Court reversed the summary judgments and vacated the orders denying Defendants' motions to dismiss, holding (1) this Court adopts the factors set forth in Larson v. Dumke, 900 F.2d 1363 (9th Cir. 1990), for determining whether a shareholder plaintiff in a derivative action fairly and adequately represents the interests of the shareholders under Nev. R. Civ. P. 23.1; (2) a corporate nominal defendant in a derivative action cannot challenge or defend the underlying merits of that action but may challenge a shareholder plaintiff's standing to bring a derivative suit; and (3) Plaintiff in this case lacked standing as an adequate representative of the shareholders.