What, if any, is the standing of a corporation in a derivative action? Until this month, that question was yet to be addressed by the Nevada Supreme Court. We now have an answer.
In Cotter ex rel. Reading Int'l, Inc. v. Kane, 136 Nev. Adv. Rep. 63 (2020), the Nevada Supreme Court held that "a corporate nominal defendant in a derivative action cannot challenge or defend the underlying merits of that action, but may challenge a shareholder plaintiffs standing to bring a derivative suit." In reaching this decision, the Court found persuasive Justice Raymond Ikola's holding in Patrick v. Alacer Corp., 167 Cal. App. 4th 995, 84 Cal. Rptr. 3d 642 (2008).
The Nevada Supreme also determined that the plaintiff lacked standing because he did not adequately represent shareholders. In making this determination, the Court expressly adopted the eight factors established by the Ninth Circuit Court of Appeals in Larson v. Dumke, 900 F.2d 1363, 1367 (1990). According to the Court, the plaintiff's interests diverged from other shareholders because one of the main remedies that he sought was reinstatement as Chief Executive Officer of the corporation. The Court also noted that the derivative action appeared to be "vindictively sought".