New York Federal Court Dismisses Derivative Suit Against Sons of Norway Executives

On February 6, the US Court for the Eastern District of New York dismissed a derivative suit against the CEO, general counsel and former international president of Sons of Norway, a fraternal organization. Former members of a local lodge brought claims relating to breach of fiduciary duty, defamation and intentional infliction of emotional distress. Plaintiffs alleged that the defendants failed to adequately investigate or intervene in the lodge’s mismanagement, which allegedly jeopardized its tax status as a charitable organization. The court held that plaintiffs lacked standing to bring a derivative suit because they failed to make a demand on the board of directors before bringing suit and failed to show why demand would have been futile, as required under Minnesota law. Plaintiffs conceded that they did not make the demand, but argued that such demand would have been futile because the CEO served on the board, and because a majority of the board had sided with the defendants during the internal investigation. The court ruled that the 12-person board was not interested or independent, asserting that plaintiffs failed to allege that the CEO could veto board decisions or that the board’s participation in the internal investigation rendered it incapable of fairly addressing the demand. The court dismissed the defamation and intentional infliction of emotional distress claims, and denied plaintiff’s request for leave to amend.