iA recent ruling by U.S. District Court Judge Anthony J. Battaglia addresses whether demand futility is an affirmative defense that must be asserted in an answer or raised in a motion to dismiss. In re Franklin Wireless, 2024 WL 1163178 (March 18, 2024) involved a derivative suit against officers and directors of a Nevada corporation. Because the suit was brought in federal court, Rule 23.1 of the Federal Rules of Civil Procedure required that the plaintiffs either demand action from the corporation's directors before filing suit or plead with particularity the reasons why such demand would have been futile.
In ruling on the defendants' motion for summary adjudication, Judge Battaglia rejected the plaintiffs' argument that the defendants had waived any arguments about demand futility because they never asserted it as an affirmative defense in their answer or file a motion to dismiss on that basis:
Plaintiffs, however, cite no case law holding that demand futility is an affirmative defense that is waived if not challenged on a motion to dismiss. Without controlling authority to the contrary, the Court agrees with Defendants that Plaintiffs bear the burden to establish demand futility, and that the issue remains live for adjudication on summary judgment.
Despite prevailing on this question, the defendants failed to persuade Judge Battaglia to grant their motion for summary adjudication.
