In re Medtronic, Inc. Shareholder Litigation
of Appeals Office of Appellate Courts
J. Magnuson, Robins Kaplan L.L.P., Minneapolis, Minnesota;
and James K. Langdon, Michelle S. Grant, James K. Nichols,
Dorsey & Whitney LLP, Minneapolis, Minnesota, for
J. Vander Weide, Gregg M. Fishbein, Richard A. Lockridge,
Kate M. Baxter-Kauf, Lockridge Grindal Nauen P.L.L.P.,
C. Gardy, James S. Notis, Jennifer Sarnelli, Gardy &
Notis, LLP, New York, New York; and Emily Komlossy, Ross
Appel, Komlossy Law, P.A., Hollywood, Florida, for
R. Marshall, Leah C. Janus, Fredrikson & Byron, P.A.,
Minneapolis, Minnesota, for amicus curiae Minnesota Chamber
test for distinguishing direct from derivative shareholder
claims for purposes of determining the application of Minn.
R. Civ. P. 23.09 focuses on the nature of the injury alleged
to determine to whom any recovery is owed.
Taking the allegations of injury in the amended complaint as
true for purposes of a motion to dismiss, the district court
erred in dismissing, as derivative, claims alleging injuries
to shareholders due to a capital-gains tax liability and
diluted shareholder interests, but did not err in dismissing
claims that asserted an injury due to an excise-tax
reimbursement made to corporate officers and directors.
in part, reversed in part, and remanded.
GILDEA, CHIEF JUSTICE.
appeal requires that we decide whether claims that respondent
and shareholder Kenneth Steiner asserts in a class-action
challenge to a merger transaction were properly dismissed. As
relevant here, the district court determined that some claims
are derivative, rather than direct, and therefore are subject
to the demand and pleading requirements of Minn. R. Civ. P.
23.09. Because Steiner failed to comply with that rule, the
district court granted the company's motion to dismiss.
With the exception of one claim, the court of appeals
reversed, holding that most of the claims are direct and
therefore Rule 23.09 does not apply. In re Medtronic,
Inc. S'holder Litig., No. A15-0858, 2016 WL 281237,
at *2-5 (Minn.App. Jan. 25, 2016). We affirm in part, reverse
in part, and remand to the district court for further
Consolidated Amended Class Action Complaint ("Amended
Complaint") alleges the following facts. On June 15,
2014, Medtronic, Inc., a Minnesota corporation, announced its
decision to acquire Covidien plc, a public Irish company, in
a transaction to be structured as an inversion. In this
transaction, Medtronic acquired Covidien through a new
holding company, Medtronic plc, incorporated in Ireland, with
Medtronic and Covidien then becoming wholly owned
subsidiaries of the Irish holding company ("new
Medtronic"). Shareholders of Medtronic had their stock
converted into shares in new Medtronic on a one-for-one
basis, while shareholders of Covidien received $35.19 and
0.956 shares of new Medtronic for every share of Covidien
stock held. Ultimately, former Medtronic shareholders
collectively owned approximately 70 percent of new Medtronic
and former Covidien shareholders collectively owned
approximately 30 percent of new Medtronic.
result of the inversion transaction, Medtronic, previously a
Minnesota corporation, now operates as a wholly owned
subsidiary of an Irish company and thus is subject to
Ireland's tax laws. Steiner alleged that Medtronic
reduced the interest of its shareholders to 70 percent of new
Medtronic in order to secure and protect the tax benefits it
sought in this transaction. In addition, because the Internal
Revenue Service treats an inversion transaction as a taxable
event for the shareholders of the U.S. company, Medtronic
shareholders incurred a capital-gains tax on Medtronic shares
held in taxable accounts but received no compensation from
the company for this tax liability. On the other hand,
Steiner alleged, Medtronic officers and directors who
incurred an excise-tax liability on their stock-based
compensation as a result of the transaction were reimbursed
by Medtronic for that expense.
the transaction was announced, Steiner filed a class-action
lawsuit against Medtronic and members of its Board of
"Medtronic"). The Amended Complaint alleged claims
for breach of fiduciary duty (Counts I-II); claims for
violations of the Minnesota Business Corporation Act, Minn.
Stat. ch. 302A (2016) (Counts III-X); and claims for
violation of the Minnesota Securities Act, Minn. Stat. ch.
80A (2016) (Counts XI-XII). The Amended Complaint
specifically alleged the following injuries to Medtronic
(1)disparate treatment of Medtronic, as compared to Covidien,
(2)disparate treatment with respect to the tax liability
incurred by Medtronic shareholders and the lack of
compensation for that liability as compared to the
reimbursement paid to Medtronic's ...