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Court dismisses business litigation for insufficient allegations

Shareholder disputes are a mainstay of corporate conflicts that can lead to litigation in Oregon and elsewhere. The board of directors of a corporation has a fiduciary duty to be transparent with the shareholders and to generally keep them accurately informed about the important transactions of the corporation. When one or more shareholders believe that the corporation has not kept them informed or has provided them with inaccurate information, they may bring business litigation to have the courts correct the breaches that have allegedly occurred and/or compensate for them.

One shareholder lawsuit in a neighboring state was recently dismissed by the federal district court judge presiding over the litigation. A shareholder had sued Amyris, a company that processes renewable products, alleging that Amyris falsified information about the company’s true worth. If accurate information is not provided, shareholders cannot make reasonable decisions on whether to retain their shares, sell them or buy more. Failure to be transparent can also be a factor in proving fraud against the company if false information is disseminated about the company’s net worth.

The company must report accurate information to avoid breaching its fiduciary duty to the shareholders. The lawsuit, filed in the U.S. District Court for the Northern District of California,  claimed that the company had breached its duty to the plaintiff shareholder by taking an equity stake in a company instead of a guaranteed cash payment as part of a financial transaction. It claimed that the failure to act prudently caused the stock value to drop thereafter.

The district court judge concluded that the plaintiff had alleged no facts that would take the board’s actions outside of the protective scope of the business judgment rule. The rule generally states that the courts will normally defer to the judgment of corporate executives. The court pointed out that the decision to take equity instead of cash is a business judgment decision that does not, barring further allegations, connote a breach of duty by the company’s executives. The rule applies in business litigation in the federal courts in Oregon and elsewhere.

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