Burden v. Bazin

Background

Stephen J. Burden and Jacqueline S. Burden brought shareholder derivative claims in the name of and on behalf of nominal defendant General Electric Company (GE). A shareholder derivative action is a lawsuit brought on a company’s behalf. Defendants had moved to dismiss the complaint under Rule 12(b) of the Federal Rules of Civil Procedure.

The plaintiffs then filed a notice of voluntary dismissal without prejudice and a proposed order. They argued that shareholder notice was unnecessary because there had been no settlement or compromise, no collusion, no consideration paid to the plaintiffs or their lawyers, and the dismissal would be without prejudice.

Court’s analysis

Rule 23.1(c) provides that a derivative action may be voluntarily dismissed only with the court’s approval. It also requires notice to shareholders or members in the manner ordered by the court. The court cited precedent stating that notice is generally required when a derivative suit has not been decided on its merits, because notice helps protect the interests of the corporation and absent shareholders.

The court found that the plaintiffs’ brief list of factors did not adequately show that dismissing the case without notice would create no risk of prejudice to absent shareholders. The opinion did not decide the defendants’ Rule 12(b) motion or the merits of the underlying derivative claims.

Disposition

The court denied the plaintiffs’ request to enter the proposed dismissal order. It denied the request without prejudice to renewal upon an adequate showing, supported by legal authority, that Rule 23.1(c) does not require shareholder notice under these circumstances. The plaintiffs may renew the request by submitting a letter and a new proposed order demonstrating that excusing notice would not prejudice absent shareholders.