In late May of 2020, a team of Faegre Drinker securities litigators won an appeal before the United States Court of Appeals for the Eighth Circuit, on behalf of client Bruce Kelley, director of Employers Mutual Casual Company (EMCC). The case was brought by plaintiff Gregory Shepard, who was a minority shareholder in an insurance company known as EMC Insurance Group (EMCI). EMCI's majority shareholder was EMCC, where Kelley served as CEO and a director.
In 2018, EMCC began the process of what is known as a “squeeze-out" merger to purchase EMCI's remaining shares. Unhappy with the relationship between EMCC and EMCI (among other things), Shepard sued EMCC and Kelley and alleged that both EMCC and Kelley had breached fiduciary duties in the years leading up to the merger.
The district court dismissed his complaint, ruling the claim was derivative in nature and that Shepard failed to meet the requirements for pleading a derivative claim. Shepard appealed, asserting that his claim was direct, not derivative as the court determined. Shepard invoked exceptions to Iowa's rules for pleading derivative claims—principally, when the shareholder is owed a “special duty," or suffers an injury that is “separate and distinct" from other shareholders.
Along with counsel for EMCC, the Faegre Drinker team defended the victory on appeal before the Eighth Circuit. It successfully convinced the Court that the district court's dismissal was correct – Shepard's claim was derivative, Shepard was owed no special duty and did not suffer any separate and distinct injury.