A plaintiff holding less than 2000 shares files a derivative suit against a corporation’s current or former directors and officers.  The trial court finds the complaint to be internally inconsistent and that regulatory filings disproved allegations of false or misleading statements.  More importantly, the trial court finds that the complaint fails to allege particularized facts showing that a pre-suit demand on the board of directors would have been futile.  The plaintiff argues that he is entitled to propound discovery on the corporation’s directors and officers “to help him fashion a sufficient complaint”.  When the trial court rejects this argument, the plaintiff appeals.

In a brief opinion issued earlier this month the California Court of Appeal soundly rejected the plaintiff’s argument, finding:

The proper purpose of discovery in a shareholder derivative action is to find out additional facts about a well-pleaded claim, not to find out whether such a claim exists.

Jones v. Martinez, Cal. Ct. Appeal Case No. B249146 (filed 10/2/2014 certified for publication 10/27/2014).  The case involved a Delaware corporation, so the Court of Appeal applied Delaware, not California law.