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Click here for the full text of this decision FACTS: Moonlight Investments, Ltd., a shareholder of a Maryland corporation known as Key Energy Services, Inc., brought this suit on behalf of Key Energy against various board members, officers, and auditors of the corporation. Those sued were Francis D. John, Richard J. Alario, James J. Byerlotzer, Royce W. Mitchell, Kevin P. Collins, W. Phillip Marcum, Ralph S. Michael III, and KPMG LLP. Key Energy was named as a nominal defendant. Key Energy and two other defendants filed motions to dismiss. The trial court granted the motions and ordered that the case be “DISMISSED in its entirety without prejudice.” Moonlight appealed. HOLDING: Reversed and remanded. Central to the issues in this case is whether, under Maryland law, Moonlight sufficiently alleged demand futility in its pleadings. Based upon allegations similar to those against the directors in the present case, the court in Werbowsky held that the shareholder was not excused from making demand because it had not satisfied the requirements for the demand futility exception. Likewise, even though Moonlight alleged that half of Key Energy’s directors participated in the wrongdoing, Moonlight’s allegations failed to demonstrate that a majority of the directors were so personally and directly conflicted or committed to the decision in dispute that they could not reasonably have been expected to respond to a demand in good faith and within the ambit of the business judgment rule. Although Texas substantive law is not applicable, Texas procedural law is. As a general rule, Texas law governs matters of remedy and procedure in Texas courts even when another jurisdiction’s substantive law applies. Texas Business Organizations Code �21.562′s exclusion of ��21.555, 21.560 and 21.561 � “procedural provisions” that do not relate to the internal affairs of the foreign corporation � indicates that the Legislature did not intend to except derivative shareholder proceedings from the general rule that Texas procedural law applies even in cases where a foreign corporation is involved. The record shows that, upon determining that Moonlight’s petition was defective, the trial court did not give Moonlight an opportunity to amend its petition but, instead, promptly dismissed the case. The appropriate procedure in this case would have been to sustain the special exceptions based upon the defective pleadings and to allow Moonlight an opportunity to amend the pleadings. The defect in the pleadings may have been curable by amendment. Thus, the trial court’s dismissal of the case prior to giving Moonlight an opportunity to amend its petition was improper. The court also finds that the error is reversible because it caused the rendition of an improper judgment. OPINION: McCloud, J.; Wright, C.J., and McCall, J., and McCloud, S.J.

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