SW Legal Educational Publishing

ADR Owner Cannot Bring Shareholder Derivative Suit
Description Appeals court affirmed district court decision to dismiss shareholder derivative suit brought by owner of ADRs (American Depository Receipts) in Honda, a Japanese company. Under the Japanese law that governs, ADR owners are not shareholders and may not bring derivative suits against company officials.
Topic Securities Law
Key Words Standing, Derivative Action, Japenese ADRs
C A S E   S U M M A R Y
Facts Batchelder brought a derivative action on behalf of Honda for various wrongs allegedly committed by the directors, officers, and employees of Honda, a Japanese company. Batchelder owned American Depository Receipts (ADRs) that reflect ownership of stock in Honda in Japan. Batchelder claims that his rights as a "shareholder" in Honda were injured by improper actions. District court dismissed the complaint, holding that under terms of the ADRs, Japanese law applies, and he has no standing to sue in U.S. courts.
Decision Affirmed. The ADRs deposit agreement states that Japanese law governs the instruments. Under Japanese law, Batchelder is not a shareholder and, therefore, lacks standing to bring a derivative action on behalf of Honda. Even if Batchelder could assert the rights of a shareholder of Honda, Japanese law would not recognize this action. Honda is a foreign private issue, exempt from federal proxy laws in the U.S.
Citation Batchelder v. Kawamoto, 147 F.3d 915 (9th Cir., 1998)

Back to Securities Law Listings

©1998  South-Western, All Rights Reserved