Also known as: derivative instruments · derivatives instrument · derivatives instruments · derivative · financial derivative
Written by attorneys · grounded in primary & secondary sources — see below
A civil suit brought in the right of a corporation, LLC, or limited partnership to recover for injury to the entity.
Delta Dynamics entered into an interest-rate swap whose value moved with Treasury yields. A shareholder brought suit alleging the trade harmed the corporation. Because the shareholder was not a record owner at the time of the trade, the court dismissed the action under the contemporaneous-ownership requirement.
Dustin Donovan held a membership interest in an LLC that traded commodity futures. After large losses, he filed a derivative action without first demanding that the managers investigate. The court dismissed the suit because demand was not shown to be futile.
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Derek Douglas became a limited partner after the partnership had already written uncovered call options. He later sued to recover losses from those options. The court held he lacked standing because his partnership interest did not devolve from a partner who held status when the options were written.
Duarte Shipping's board began an internal review of allegedly unauthorized currency swaps. A shareholder who had filed a derivative complaint moved to proceed immediately. The court stayed the action to allow the inquiry to finish.
Decker Electronics prevailed in a derivative suit over mismanaged equity derivatives. The judgment proceeds were paid directly to the LLC rather than to the plaintiff member who brought the action.
Duffy Construction's limited partnership was named in a derivative suit concerning interest-rate derivatives. The partnership appointed a special litigation committee that moved to stay discovery while it investigated whether continuing the action served the partnership's interests.
The plaintiff must have been a shareholder or member at the time the challenged conduct occurred and must remain one when the action is commenced. In addition, the plaintiff ordinarily must make a demand on the board or managers unless demand would be futile.
Any recovery belongs to the corporation, LLC, or partnership, not to the individual plaintiff. The plaintiff may receive reasonable expenses and attorneys' fees from the recovery if the action succeeds in whole or in part.
If the entity begins an inquiry into the allegations, the court may stay the action for the period it deems appropriate to allow the inquiry to conclude.
Generally no. Standing requires ownership at the time the conduct occurred, unless the interest devolved by operation of law or under the governing agreement from someone who held the interest at that time.