In Novedea Sys. v. Colaberry, Inc., co-founders of a business discussed terms of a buy-out, but ended up in litigation. No. 6:20-cv-00180-JDK, 2021 U.S. Dist. LEXIS 152372 (E. D. Tex. August 13, 2021). One co-founder sued on his behalf and on behalf of the company against the other co-founder without discussing the suit with the other co-founder or the board of directors. The defendant filed a motion for summary judgment, arguing that the plaintiff did not have authority to file a lawsuit for the company. The plaintiff responded that his “authority derives from his standing “as a longtime manager and corporate officer” of Novedea, or alternatively, as a shareholder bringing a derivative action.” Id.

The court stated:

“Generally, an officer of the corporation may not authorize the pursuit of litigation without a delegation of authority from the board of directors.” Here, Dasari has presented no evidence that Novedea’s board authorized him to bring this lawsuit. In fact, Novedea’s board has since resolved that the company wants no part of this litigation.

Plaintiffs alternatively claim that Dasari is suing on behalf of Novedea in a shareholder-derivative capacity. Federal Rule of Civil Procedure 23.1 allows “one or more shareholders . . . [to] bring a derivative action to enforce a right that the corporation or association may properly assert but has failed to enforce.” But derivative-action complaints must meet certain pleading requirements, including a particularized statement describing “any effort by the plaintiff to obtain the desired action from the directors . . . and the reasons for not obtaining the action or making the effort.” Fed. R. Civ. P. 23.1(b). And under Texas law, the shareholder must first demand that the corporation take action before bringing suit, stating with particularity the act that is the subject of the claim. Katamaraja argues that Dasari never made such a pre-suit demand, which is fatal to Novedea’s claims. For corporations with fewer than thirty-five shareholders, however, the demand requirement “do[es] not apply to a claim or derivative proceeding by a shareholder . . . against a director, officer, or shareholder of the corporation.” Thus, because Novedea has only two shareholders, Dasari was not required to make a pre-suit demand before bringing claims against Katamaraja, a Novedea director.

The demand requirement nevertheless applies to claims “made against a person who is not that director, officer, or shareholder.” This means that Dasari must show he demanded Novedea’s board take action against Colaberry before bringing this suit. And here, Dasari did not even attempt to show he satisfied this requirement until his sur-reply, leaving Katamaraja no ability to respond. In any event, Dasari’s claimed pre-suit demand is insufficient as a matter of law because it does not include a demand that Novedea’s board file this lawsuit. Even if it were sufficient, Texas law prohibits suits brought within ninety days of the demand unless the demand was rejected, the corporation is suffering irreparable injury, or irreparable injury would result from waiting. Dasari presents no evidence of a rejection, and the Court has previously denied Dasari’s claims of irreparable injury. Accordingly, Novedea’s claims against Katamaraja may proceed as shareholder derivative claims by Dasari, but Novedea’s claims against Colaberry must be dismissed for failure to satisfy the statutory demand requirement.

Id. (internal citations omitted). Accordingly, the court allowed the shareholder derivative action to continue as against the officer.

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Photo of David Fowler Johnson David Fowler Johnson

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David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary…

[email protected]

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. Read More

David’s financial institution experience includes (but is not limited to): breach of contract, foreclosure litigation, lender liability, receivership and injunction remedies upon default, non-recourse and other real estate lending, class action, RICO actions, usury, various tort causes of action, breach of fiduciary duty claims, and preference and other related claims raised by receivers.

David also has experience in estate and trust disputes including will contests, mental competency issues, undue influence, trust modification/clarification, breach of fiduciary duty and related claims, and accountings. David’s recent trial experience includes:

  • Representing a bank in federal class action suit where trust beneficiaries challenged whether the bank was the authorized trustee of over 220 trusts;
  • Representing a bank in state court regarding claims that it mismanaged oil and gas assets;
  • Representing a bank who filed suit in probate court to modify three trusts to remove a charitable beneficiary that had substantially changed operations;
  • Represented an individual executor of an estate against claims raised by a beneficiary for breach of fiduciary duty and an accounting; and
  • Represented an individual trustee against claims raised by a beneficiary for breach of fiduciary duty, mental competence of the settlor, and undue influence.

David is one of twenty attorneys in the state (of the 84,000 licensed) that has the triple Board Certification in Civil Trial Law, Civil Appellate and Personal Injury Trial Law by the Texas Board of Legal Specialization.

Additionally, David is a member of the Civil Trial Law Commission of the Texas Board of Legal Specialization. This commission writes and grades the exam for new applicants for civil trial law certification.

David maintains an active appellate practice, which includes:

  • Appeals from final judgments after pre-trial orders such as summary judgments or after jury trials;
  • Interlocutory appeals dealing with temporary injunctions, arbitration, special appearances, sealing the record, and receiverships;
  • Original proceedings such as seeking and defending against mandamus relief; and
  • Seeking emergency relief staying trial court’s orders pending appeal or mandamus.

For example, David was the lead appellate lawyer in the Texas Supreme Court in In re Weekley Homes, LP, 295 S.W.3d 309 (Tex. 2009). The Court issued a ground-breaking opinion in favor of David’s client regarding the standards that a trial court should follow in ordering the production of computers in discovery.

David previously taught Appellate Advocacy at Texas Wesleyan University School of Law located in Fort Worth. David is licensed and has practiced in the U.S. Supreme Court; the Fifth, Seventh, and Eleventh Federal Circuits; the Federal District Courts for the Northern, Eastern, and Western Districts of Texas; the Texas Supreme Court and various Texas intermediate appellate courts. David also served as an adjunct professor at Baylor University Law School, where he taught products liability and portions of health law. He has authored many legal articles and spoken at numerous legal education courses on both trial and appellate issues. His articles have been cited as authority by the Texas Supreme Court (twice) and the Texas Courts of Appeals located in Waco, Texarkana, Beaumont, Tyler and Houston (Fourteenth District), and a federal district court in Pennsylvania. David’s articles also have been cited by McDonald and Carlson in their Texas Civil Practice treatise, William v. Dorsaneo in the Texas Litigation Guide, and various authors in the Baylor Law ReviewSt. Mary’s Law JournalSouth Texas Law Review and Tennessee Law Review.

Representative Experience

  • Civil Litigation and Appellate Law