## Facts

- Rose, a minority shareholder, sued the corporation’s president and controlling shareholder, Schantz, and another officer/director.
- The complaint combined (1) a shareholder derivative action on behalf of the corporation, (2) a direct shareholder action seeking individual relief, and (3) requests for injunctive relief concerning challenged corporate transactions.
- Rose alleged self-interested corporate actions, including plans to redeem stock, pay corporate debentures before due, and release Schantz from potential liability to the corporation.
- Rose did not make a pre-suit demand on the board of directors or provide prior written notice; he instead pleaded reasons for not doing so (including that control by the alleged wrongdoers made demand ineffective).
- Defendants filed a demurrer attacking the derivative claim, the direct claim, and the joinder of claims and parties.
- The trial court overruled the demurrer and entered temporary injunctive relief restraining payment of debentures before due, redemption of stock, and any release of Schantz from liability to the corporation.
- Defendants appealed.

## Issues

1. Whether the derivative claim was barred for failure to make demand and provide written notice under Wis. Stat. § 180.405(1)(b), notwithstanding pleaded reasons for not making such efforts.
2. Whether the complaint stated a valid direct shareholder claim for injuries personal to Rose, as distinct from injuries to the corporation.
3. Whether derivative and direct claims, and the related parties, could be joined in a single action.
4. Whether the temporary injunction restraining specified corporate actions was proper pending litigation.

## Decision

- The Wisconsin Supreme Court affirmed the order overruling the demurrer.
- The court held the derivative action was sufficiently pleaded under Wis. Stat. § 180.405(1)(b) because the statute permits a plaintiff to proceed by alleging reasons for not making demand/efforts to secure board action.
- The court held the complaint adequately stated a direct shareholder claim to the extent it alleged injury personal to Rose, distinct from harm to the corporation.
- The court upheld joinder of the derivative and direct claims and the parties because the claims arose from related transactions and allegations involving the same controlling actors.
- The court affirmed the temporary injunction, concluding the trial court did not misuse discretion in restraining the challenged transactions to preserve the status quo and prevent irreparable harm.

## Legal Principles

- Under Wis. Stat. § 180.405(1)(b), a derivative-suit complaint must plead with particularity either (a) efforts to obtain board action and specified written notice to the corporation/board, or (b) reasons for not making such efforts; demand/notice is not absolute when an adequate excuse is pleaded.
- A shareholder may sue directly when the alleged wrong causes injury to the shareholder individually, rather than an injury primarily to the corporation; related wrongs may support both derivative and direct claims if distinct harms are alleged.
- Joinder of derivative and direct causes of action and related parties is permissible when the claims stem from the same general transactions and alleged conduct, allowing unified adjudication.
- Temporary injunctive relief may issue in shareholder litigation to prevent corporate actions that could cause irreparable harm or materially alter positions before the merits are resolved.

## Conclusion

The court allowed the action to proceed by reading the derivative-suit statute to permit demand to be excused when the complaint pleads reasons for not seeking board action, upheld the pleading of both derivative and direct shareholder claims, approved their joinder, and affirmed temporary injunctive relief restraining disputed corporate transactions pending resolution on the merits.


Rose v. Schantz, 56 Wis. 2d 222, 201 N.W.2d 593 (Wis. 1972)