IN RE: CHESAPEAKE SHAREHOLDERS DERIVATIVE LITIGATION

IN RE: CHESAPEAKE SHAREHOLDERS DERIVATIVE LITIGATION
2013 OK CIV APP 91
Case Number: 108146
Decided: 08/26/2011
Mandate Issued: 10/23/2013
DIVISION I
THE COURT OF CIVIL APPEALS OF THE STATE OF OKLAHOMA, DIVISION I

IN RE: CHESAPEAKE SHAREHOLDERS DERIVATIVE LITIGATION:

SHAREHOLDERS OF CHESAPEAKE ENERGY CORPORATION, Plaintiffs/Appellants,
v.
CHESAPEAKE ENERGY CORPORATION, Defendant/Appellee.

APPEAL FROM THE DISTRICT COURT OF
OKLAHOMA COUNTY, OKLAHOMA

HONORABLE TWYLA MASON GRAY, TRIAL JUDGE

AFFIRMED

John E. Barbush, Oklahoma City, Oklahoma, for Plaintiffs/Appellants,
Robin Winchester, BARROWAY, TOPAZ, KESSLER, MELTZER & CHECK, LLP, Radnor, Pennsylvania, for Plaintiff/Appellant, Firefighters Pension and Relief Fund for the City of New Orleans and York County Employees' Retirement Board,
Timothy A. Lelange, BERNSTEIN, LITOWITZ, BERGER & GROSSMANN, LLP, San Diego, California, for Plaintiff/Appellant, Louisiana School Employees' Retirement System and New Orleans Employees' Retirement System,
Marc I. Gross, POMERANTZ, HAUDEK, GROSSMAN & GROSS, LLP, New York, New York, for Plaintiff/Appellant, Louisiana Police Employees' Retirement System,
James R. Webb, McAFEE & TAFT, Oklahoma City, Oklahoma, and Robert P. Varian, ORRICK, HERRINGTON & SUTCLIFFE, LLP, San Francisco, California, for Defendant/Appellee.

Wm. C. Hetherington, Jr., Presiding Judge:

¶1 This appeal seeks review of the dismissal of an amended Verified Consolidated Shareholder Derivative Petition for Breach of Fiduciary Duties, Waste, Unjust Enrichment, and Insider Selling. Appellants contend the basis for dismissal, their failure to make a demand on the defendants before instituting a shareholder derivative lawsuit, did not apply under the facts and circumstances. The case comes on for review as an accelerated appeal pursuant to Okla.Sup.Ct. R. 1.36 and presents a single issue for review - whether the motion to dismiss was properly granted because a demand was required prior to institution of litigation.

STANDARD OF REVIEW

¶2 "When reviewing a motion to dismiss, the Court must take as true all of the challenged pleading's allegations together with all reasonable inferences which may be drawn from them." Fanning v. Brown, 2004 OK 7, ¶4, 85 P.3d 841, 844. "The purpose of a motion to dismiss is to test the law that governs the claim in litigation, not the underlying facts." Tuffy's, Inc. v. City of Oklahoma City, 2009 OK 4, ¶212 P.3d 1158, 1162-1163.

¶3 "In order to determine whether there was an abuse of discretion, a review of the facts and the law is essential." Board of Regents of University of Oklahoma v. National Collegiate Athletic Association, 1977 OK 17, ¶3, 561 P.2d 499, 502. "An abused judicial discretion is manifested when discretion is exercised to an end or purpose not justified by, and clearly against, reason and evidence. It is discretion employed on untenable grounds or for untenable reasons, or a discretionary act which is manifestly unreasonable." Patel v. OMH Medical Center, Inc., 1999 OK 33, ¶20, 987 P.2d 1185, 1194, cert. denied, 528 U.S. 1188, 120 S. Ct. 1242, 146 L. Ed. 2d 100. (Footnote omitted.) "Because a trial court's discretion is broad its ruling will not be disturbed by the reviewing tribunal in the absence of a clear showing of a manifest error or abuse of discretion with respect to a pure, simple and unmixed material question of law." Capshaw v. Gulf Insurance Company, 2005 OK 5, ¶7, 107 P.3d 595, 600. (Footnote omitted.)

ANALYSIS

¶4 In 1984, the Legislature provided, in pertinent part, the petition in a derivative action by shareholders shall "allege with particularity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors or comparable authority and, if necessary, from the shareholders or members, and the reasons for his failure to obtain the action or for not making the effort." 12 O.S.2001 § 2023.1. "Whether or not an action would have been futile depends on the facts and circumstances of each case, and lies within the discretion of the trial court." Hargrave v. Canadian Valley Electric Cooperative, Inc., 1990 OK 43, ¶12, 792 P.2d 50, 55.

¶5 After review of the record, which includes extensive citation to the Delaware law from which Oklahoma derived its General Corporation Act, 18 O.S.2001 § 1001, et seq., see Beard v. Love, 2007 OK CIV APP 118, 173 P.3d 796 and Woolf v. Universal Fidelity Insurance Company, 1992 OK CIV APP 129, 849 P.2d 1093, we conclude the trial court did not manifestly err or abuse its discretion, and its Order Sustaining Defendant's Motion to Dismiss With Leave to Amend adequately explains its decision. The trial court decision, a copy of which is attached, is AFFIRMED UNDER OKLA. SUP.CT.R. 1.202(d).

BELL, C.J., and HANSEN, J., concur.

ATTACHMENT