Civil Procedure

Kamen v. Kemper Financial Services, Inc. — Study Notes

500 U.S. 90 (1991)

Study notes for Kamen v. Kemper Financial Services, Inc.: professor notes, cold call prep, exam angles, and memory aids.

The demand futility doctrine in shareholder derivative actions is governed by state law.
Professor Notes

In Kamen v. Kemper Financial Services, Inc., the Supreme Court addressed the intersection of state and federal law regarding derivative shareholder actions. The Court emphasized that state law governs the demand futility exception, fundamentally altering the understanding of how shareholders could proceed in derivative lawsuits without exhausting internal remedies. Professors often highlight the implications of this decision for shareholder litigation, particularly how it emphasizes the importance of adhering to state-specific procedural requirements before engaging in federal courts.

Additionally, the ruling underscored the role of board independence in determining when demand could be considered futile. The Court's insistence on aligning federal claims with state procedural norms reflects a critical balance between respecting state autonomy and ensuring compliance with broader federal principles, prompting further discussion in class about the balance of power between state and federal jurisdictions in corporate governance.

Cold Call Prep
  1. 1What is the demand futility exception and how does it apply in this case?
  2. 2Explain why the Court held that state law governs the demand futility doctrine.
  3. 3What implications does this case have on the independence of board members in shareholder derivative actions?
  4. 4Discuss the significance of a shareholder’s obligation to make a demand before filing a derivative suit.
  5. 5What was the rationale behind the Supreme Court's decision concerning federal versus state law?
  6. 6How would this case apply to a situation where state law conflicts with federal policy?
  7. 7Can you elaborate on how the ruling in Kamen v. Kemper aligns with general principles of corporate governance?
Mnemonic Device

Kamen Keeps State Law in Charge of Demand Futility (KSLCDF)

Distinguish From
CaseDistinction
Alvarez v. SmithAlvarez involved the interpretation of federal law regarding ripeness, whereas Kamen focuses on state law requirements for derivative actions.
Chandler v. TafeenChandler dealt with the standards for evaluating demand futility under Delaware law, while Kamen establishes broader principles relevant to federal courts.
In re Oracle Corp. Derivative LitigationIn Oracle, the issue concerned director independence under Delaware law; Kamen's focus is on the demand futility landscape in relation to state versus federal law.
Policy Arguments

For the Rule

The state law requirement promotes respect for local governance and corporate hierarchy, ensuring that directors have the chance to address issues internally.

Against the Rule

Requiring adherence to state law may create barriers for shareholders seeking to address wrongful conduct, especially when state laws are perceived as unprotective.

Class Discussion Points
  • The impact of Kamen on the landscape of shareholder derivative actions.
  • The balance of power between state and federal courts in corporate law.
  • The importance of board independence and accountability in corporate governance.
  • Potential remedies for shareholders when the demand requirement appears overly burdensome.
  • Future implications of Kamen for emerging cases involving corporate malfeasance.
Exam Angle

In exams, this case may be framed to assess students' understanding of the interplay between state and federal laws regarding derivative actions, along with implications for shareholder rights and board independence.

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