(1) No action shall be commenced by a shareholder in the right of a domestic corporation, and no action shall be commenced in this state by a shareholder in the right of a foreign corporation, unless the plaintiff was a shareholder of the corporation at the time of the transaction of which the plaintiff complains or the plaintiff is a person upon whom shares or voting trust certificates thereafter devolved by operation of law from a person who was a shareholder at such time.
(2) In any action instituted on or after January 1, 1959, in the right of any domestic or foreign corporation by a shareholder, the court having jurisdiction, upon final judgment and a finding that the action was commenced without reasonable cause, shall require the plaintiff to pay to the parties named as defendants the costs and reasonable expenses directly attributable to the defense of such action, but not including fees of attorneys.
(3) In any action pending, instituted, or maintained on or after January 1, 1959, in the right of any domestic or foreign corporation by a shareholder holding less than five percent of the outstanding shares of any class of such corporation or of voting trust certificates therefor, unless the shares or voting trust certificates so held have a market value in excess of twenty-five thousand dollars, the corporation in whose right such action is commenced shall be entitled, at any time before final judgment, to require the plaintiff to give security for the costs and reasonable expenses which may be directly attributable to and incurred by it in the defense of such action or may be incurred by other parties named as defendant for which it may become legally liable, but not including fees of attorneys. Market value shall be determined as of the date that the plaintiff institutes the action or, in the case of an intervenor, as of the date that the plaintiff becomes a party to the action. The amount of such security may from time to time be increased or decreased, in the discretion of the court, upon showing that the security provided has or may become inadequate or is excessive. If the court finds that the action was commenced without reasonable cause, the corporation shall have recourse to such security in such amount as the court shall determine upon the termination of such action.
Source: L. 93: Entire article added, p. 777, § 1, effective July 1, 1994.
ANNOTATION
Law reviews. For article, "The 1985 Proposed Revisions to the Colorado Corporation Code", see 14 Colo. Law. 34 (1985). For article, "The Long and Winding Road to Public Benefit Corporations in Colorado", see 43 Colo. Law. 39 (Jan. 2014).
Annotator's note. Since § 7-107-402 is similar to § 7-4-121 as it existed prior to the 1993 recodification of the "Colorado Business Corporation Act", articles 101 to 117 of title 7, cases construing that provision and its predecessors have been included in the annotations to this section.
Use of the term "holder of shares" instead of "holder of record of shares" (as used in § 7-1-102) suggests that a plaintiff in a derivative claim based on state law need not be a record owner of shares throughout the pendency of the lawsuit. Mullen v. Sweetwater Development Corp., 619 F. Supp. 809 (D. Colo. 1985).
A stockholder with knowledge of material facts who has acquiesced in a transaction ordinarily cannot attack the transaction on behalf of the corporation, nor may that stockholder bring such an action unless he acts promptly. Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).
But affirmative defenses may not be asserted against corporation in derivative suit. The affirmative defenses of laches, acquiescence, waiver, ratification, estoppel, and unclean hands on the part of a plaintiff stockholder ordinarily may not be asserted against the corporation in a stockholder's derivative suit. Herald Co. v. Bonfils, 315 F. Supp. 497 (D. Colo. 1970), rev'd on other grounds sub nom. Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).
Similarly, the corporation itself has no standing to urge that plaintiff is guilty of laches. Herald Co. v. Bonfils, 315 F. Supp. 497 (D. Colo. 1970), rev'd on other grounds sub nom. Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir. 1972).