27 August 2013

Law in Plain English: UBS v. Union de Empleados

This is one in a series of posts designed to describe court decisions in plain English. For more detail and background on the legal issues, see the link to the case below. For similar posts, click here.

SCOTUSblogUBS v. Union de Empleados

Argument: N/A

Discussion: Union de Empleados ("UE") is a pension plan that own shares in closed-end investment funds ("the Funds") advised by UBS. UE brought a shareholder derivative action in federal district court against UBS. A shareholder derivative action permits a shareholder of a corporation to bring suit to enforce rights the corporation is unable or unwilling to enforce on its own behalf. UBS filed a motion to dismiss, and the District Court granted the motion because no pre-suit demand had been made on the Funds' boards of directors, and plaintiffs had failed in their complaint to state with particularity the reasons such a demand would have been futile. On appeal, the First Circuit reviewed the case de novo, and vacated the dismissal of the derivative claims. UBS argues that the proper standard of appellate review should be abuse of discretion. Abuse of discretion gives weight to the lower court's decision while de novo review considers the case as if it was being heard for the first time.

Issue: The question before the Court is whether, consistent with the standard of review employed by other Circuit Courts of Appeals, but in direct conflict with the decision below, the United States Court of Appeals for the First Circuit should have reviewed for abuse of discretion the District Court’s determination, pursuant to Rule 23.1, that the particularized facts alleged in a shareholder derivative complaint were insufficient to excuse a pre-suit demand on the corporation's board of directors.

Holding: N/A

Disposition: On August 26, the Supreme Court dismissed the case pursuant to Rule 46. According to Reuters, a July 9th ruling by a U.S. District Court judge in Puerto Rico indicated that the plaintiffs had sold their shares. As a result, they no longer had standing to pursue the claims at issue in the Supreme Court case and the judge dismissed the original lawsuit.
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