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Tindall v. First Solar, Inc.

ELR Citation: 48 ELR 20101
Nos. 17-15185, (9th Cir., 06/13/2018)

The Ninth Circuit upheld the dismissal of shareholders' derivative action against a solar panel company for failing to disclose in financial statements and press releases the existence of manufacturing and design defects. The shareholders alleged that the officers and directors of the company breached their fiduciary duties in failing to make the disclosures. A derivative action requires the shareholder to make a litigation demand on the company's board of directors. If no demand is made, it must then show demand futility. Here, the shareholders made no litigation demand, and applying Delaware law, the court held that the shareholders failed to show demand futility. One of the tests used to demonstrate futility—the Aronson test—does not apply here because it is limited to board business decisions, involving judgments by the board as to whether to enter into a course of conduct. By contrast, financial statements and press releases provide a snapshot of past conduct, and reflect business judgments already made. And the shareholders conceded that the other test—the Rales test—does not excuse demand under the facts of this case. The lower court, therefore, properly dismissed the case.