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Plaintiffs File Amended Complaint Against Yahoo! But Is Something Missing?

Last spring, a derivative suit was filed in California Superior Court against certain of current and former directors and officers of Yahoo!, Inc. alleging breach of fiduciary duty in connection with the company's widely reported data breach.  The original complaint also included a cause of action for insider trading under California Corporations Code Sections 25402 and 25403.   Yahoo!, Inc., which is now known as Altababa Inc., is a Delaware corporation, but the complaint was filed in California Superior Court.  The day after New Years Day, the plaintiffs filed an amended complaint (Case No. 17CV307054).

As I have pointed out in prior posts, California Corporations Code Section 800 establishes specific pleading requirements for derivative actions that apply to California as well as foreign corporations. Similar to other jurisdictions, Section 800(b)(2) requires that a plaintiff allege "in the complaint with particularity plaintiff’s efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and alleges further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file".  This sounds like your typical requirement that a plaintiff either plead that it has made a demand or that demand would be futile.

In the case of the suit against Yahoo!, the plaintiffs are alleging that demand was futile.  But even if they have pleaded demand futility adequately (which remains to be seen), that is not the end of California's requirement.  Section 800(b)(2) also requires that a plaintiff allege either (1) that it has informed the board in writing of the "ultimate facts" of each cause of action against each defendant; or (2) delivered to the corporation or the board a true copy of the complaint which the plaintiff proposes to file.  Note that plaintiff must allege that it has taken at least one of these actions before filing the complaint. See Re v. Weksel, 130 A.D.2d 640 (1987) (applying the same language in former Corporations Code Section 15702(a)(2) in dismissing the plaintiff's complaint).  

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