Shareholder Derivative Action In Alabama
Alabama Court has held that majority shareholders in a close corporation owe a duty to act fairly toward minority shareholders. Stallworth v. AmSouth Bank of Alabama, 709 So. 2d 458, 467 (Ala. 1997); Burt v. Burt Boiler Works, 360 So. 2d 327, 331 (Ala. 1978).
However, it has also held that when a plaintiff's status as a shareholder is essential to his claims for damages, including damages based on claims of suppression and oppression, the claims are derivative claims and must be brought on behalf of the corporation. Pegram v. Hebding, 667 So. 2d 696, 702 (Ala. 1995); McLaughlin v. Pannell Kerr Forster, 589 So. 2d 143 (Ala. 1991).
In an equity proceeding the judgment can be molded "so as to adjust the equities of all parties and to meet the obvious necessities of each situation." Coupounas v. Morad, 380 So. 2d 800, 803 (Ala. 1980); BBC Investment Co. v. Ginsberg, 280 Ala. 148, 190 So. 2d 702 (1966); Bouldin v. City of Homewood, 277 Ala. 665, 174 So. 2d 306 (1965) (on rehearing). See also Fulton v. Callahan, 621 So. 2d 1235 (Ala. 1993).
Although this specific situation has not been addressed by this Court or by any Alabama appellate court, the Wisconsin Court of Appeals has dealt with this issue and has affirmed equitable remedies created by the trial court. Mulder v. Mittelstadt, 120 Wis. 2d 103, 115, 352 N.W.2d 223, 228-29 (Wis. App. 1984).
Before a shareholder can be awarded damages on a derivative claim, the shareholder must make a presuit demand on the board of directors of the corporation to correct the wrongs alleged, so that the corporation can deal with the problems internally if possible. Stallworth, 709 So. 2d at 463; Shelton v. Thompson, 544 So. 2d 845, 850 (Ala. 1989); Kaufman v. Kansas Gas & Elec. Co., 634 F. Supp. 1573, 1577 (D. Kan. 1986); Lewis v. Graves, 701 F.2d 245, 247 (2d Cir. 1983).
However, if the demand on the directors would be futile, then the demand requirement is excused. Elgin v. Alfa Corp., 598 So. 2d 807 (Ala. 1992); American Life Ins. Co. v. Powell, 262 Ala. 560, 564, 80 So. 2d 487, 490 (1954).
In order to show futility, "the shareholder ... must demonstrate such a degree of antagonism between the directors and the corporate interest that the directors would be incapable of performing their duty." Elgin, 598 So. 2d at 815.