In re Medtronic, Inc. Derivative Litigation, 2014 U.S. Dist. LEXIS 176088

Plaintiffs William A. Houston and Marilyn Clark sue derivatively on behalf of Medtronic, seeking to enjoin Gross-Up Payments tied to an inversion with Covidien.
The proposed inversion would re-incorporate Medtronic in Ireland as New Medtronic, reducing U.S. tax liability for officers and directors under § 4985.
Medtronic’s Board proposed reimbursing directors’ excise tax liabilities and providing additional funds to cover the resulting tax impact (Gross-Up Payments).
The Proxy and Form S-4 disclosed the amounts of reimbursements to each officer and director; Plaintiffs contend these payments are improper self-dealing.
Plaintiffs asserted four counts: breach of fiduciary duties, unjust enrichment, corporate waste, and violation of Section 14(a) of the Exchange Act; Plaintiffs sought a preliminary injunction only to halt the Gross-Up Payments, not the inversion itself.
The Court applied Minnesota law, held demand futility was not shown, and denied the preliminary injunction as there was no likelihood of success on the merits.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Duty to demand futility under Minnesota law	Plaintiffs argue demand would be futile since board members benefit from Gross-Ups.	Defendants contend SLC under § 302A.241 could address the demand; demand not futile.	Demand futility not shown; no fair chance of success.
Availability of a special litigation committee (SLC) under Minn. Stat. § 302A.241	Plaintiffs argue an SLC cannot cure futility; demand cannot be agencyly assigned.	Board may appoint an SLC of independent directors or outsiders; could address the demand.	SLC option exists; did not establish futility.
Likelihood of success on the merits for injunction	Injunction warranted to prevent self-dealing through Gross-Ups.	No irreparable harm shown and no likelihood of success on meritsa.	Denied; no likelihood of success.
Choice of law for demand futility	Delaware standards should apply due to self-dealing precedents.	Minnesota law governs demand futility in this corporate action.	Minnesota law governs; Delaware standards not controlling.

Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7 (U.S. 2008) (four-factor test for preliminary injunctions; irreparable harm essential)
Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (U.S. 1991) (federal common law incorporation into state law principles)
In re UnitedHealth Group Inc. Shareholder Derivative Litigation, 754 N.W.2d 544 (Minn. 2008) (Minnesota authority on SLC and derivative litigation)
Winter, 107 N.W.2d 233 (Minn. 1961) (demand futility is an exceptional remedy; requires no possibility of relief other than the lawsuit)
Reimel v. MacFarlane, 9 F.Supp.2d 1062 (D. Minn. 1998) (discussed in context of demand futility and § 302A.241; not persuasive for current law)
In re Patterson Enterprises, Inc. Securities, Derivative & ERISA Litigation, 479 F.Supp.2d 1014 (D. Minn. 2007) (cited for demand futility analysis under Minnesota law; distinguishable)
In re Xcel Energy, Inc., 222 F.R.D. 603 (D. Minn. 2004) (Delaware vs Minnesota demand futility standards; Minnesota law controls here)
Haberle v. Baker, 2005 WL 2105543 (D. Minn. 2005) (discussed as related authority on demand futility (not official reporter))
Grudnosky v. Bislow, 251 Minn. 496, 88 N.W.2d 847 (Minn. 1958) (pre-Minn. § 302A.241; cited regarding demand futility)
Rothwell v. Robinson, 39 Minn. 1, 38 N.W. 772 (Minn. 1888) (pre-statute demand futility considerations)