In re Medtronic, Inc., Shareholder Litigation

Medtronic, Inc., a Minnesota corporation, merged with Covidien plc, an Irish company, becoming an Irish corporation with Medtronic shareholders left holding only a reduced 70% stake. The IRS taxed the merger, subjecting Medtronic shareholders to capital gains tax that Medtronic never reimbursed, while Medtronic's own directors — who separately owed an excise tax on their merger-related stock compensation — were reimbursed by the company for that liability. Kenneth Steiner (plaintiff) brought a class action against Medtronic and its board alleging three injuries: shareholders' unreimbursed capital gains tax, the company's reimbursement of directors' excise taxes, and shareholders' diluted voting power post-merger. Medtronic moved to dismiss, arguing the whole suit was really a derivative action that required a prior demand on the board, which Steiner hadn't made. The district court agreed and dismissed the case; the court of appeals affirmed dismissal of the excise-tax claim as derivative but reversed as to the other two claims, finding them direct; the Minnesota Supreme Court took up the case.