Also known as: derivative lawsuit · derivative suit · derivative suits · shareholder derivative action · derivative action
Written by attorneys · grounded in primary & secondary sources — see below
An action commenced by a member or shareholder to enforce a right belonging to the entity itself when those in control have failed to act. The plaintiff must satisfy contemporaneous ownership and demand requirements under applicable statutes. Any recovery belongs to the entity rather than the individual plaintiff.
Dominic Drake acquired his membership interest in Drake Logistics six months after managers allegedly diverted company funds. He immediately filed a derivative action seeking recovery for the LLC. The court dismissed the suit because Dominic was not a member when the misconduct occurred.
Damian Decker sent a written demand to the general partner of Dominion Capital requesting suit over a diverted opportunity. Four months passed with no action taken. Damian then filed a derivative action on the partnership's behalf.
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Devon Drake prevailed in a derivative suit on behalf of Davenport Pharmaceuticals and obtained a substantial judgment. The court directed that the entire award be paid directly to the LLC rather than to Devon personally.
Diane Dawson secured a settlement in a derivative action for Dixon Foods after proving the general partner had misappropriated assets. The court ordered the settlement funds paid to the limited partnership.
Dwight Dorsey's derivative suit on behalf of Drake Logistics recovered substantial damages for the LLC. The court granted Dwight reasonable attorneys' fees and costs drawn from the LLC's recovery.
David Dawson filed a derivative action alleging the board of Davenport Pharmaceuticals failed to implement adequate compliance controls. After a partial settlement, the court directed all proceeds to the corporation.
Only a person who is a member both when the conduct occurred and when the action is commenced may maintain the suit.
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Any judgment, settlement, or other benefits belong to the entity, not the plaintiff.
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If the action succeeds in whole or in part, the court may award reasonable expenses including attorneys' fees from the entity's recovery.
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Yes, the member must first demand that the managers or other members cause the company to sue, unless demand would be futile.
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…Congress made no specific reference to a private right of action in § 14(a) that, in any event, the right would not extend to derivative suits and should be limited to prospective relief only. In addition, some of the petitioners argue that the merger can be dissolved only if it was fraudulent or non-beneficial, issues upon which…