Also known as: derivative suit · derivative action · derivative actions · shareholder derivative suit · stockholder derivative suit
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 rather than to the individual owner. The plaintiff must satisfy contemporaneous ownership and demand requirements before proceeding. Any recovery belongs to the entity.
Doris Duffy acquired her membership interest in Desert Oil after the managers diverted a corporate opportunity. She commenced a derivative action without first acquiring status at the time of the conduct. The court dismissed the suit because she failed the contemporaneous ownership requirement.
Dominic Drake sent a written demand to the general partner of Duarte Shipping requesting suit over a diverted contract. Eleven months passed with only vague assurances and no filing. He then filed a derivative action, and the court permitted it to proceed because the general partner had not acted within a reasonable time.
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Destiny Davis prevailed in a derivative suit on behalf of Dakota Industries recovering diverted funds. The judgment directed payment directly to the LLC. Destiny received no personal share of the proceeds under the governing rule.
Demetrius Douglas obtained a settlement in a derivative action for Dover Bank after the general partner misappropriated assets. The court ordered the entire settlement paid to the partnership. Demetrius immediately remitted any funds he received to the entity.
Devon Drake prevailed on a derivative claim for Desert Oil recovering misappropriated funds. The court awarded him reasonable attorneys fees and costs from the LLC recovery. The award compensated the effort without shifting the proceeds away from the company.
Delilah Duran brought a derivative action alleging misleading proxy materials caused a merger harming the corporation. The court recognized an implied private right of action under the securities statute. The suit proceeded on behalf of the entity to remedy the violation.
Only a person who is a member at the time the action is commenced and who was a member when the conduct occurred or acquired status by operation of law may maintain the suit.
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Any proceeds or benefits belong to the limited liability company or limited partnership and not to the plaintiff. The plaintiff must remit any received proceeds immediately to the entity.
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If the action succeeds in whole or in part the court may award the plaintiff reasonable expenses including attorneys fees and costs from the entity's recovery.
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A partner must first make a demand on the general partners unless the demand would be futile. The general partners must then fail to bring the action within a reasonable time.
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…under § 27 of the Act.[^maj-2] The court held Wis. Stat., 1961, § 180.405 (4), which requires posting security for expenses in derivative actions, applicable to both counts, except that portion of Count 2 requesting declaratory relief. It ordered the respondent to furnish a bond in the amount of $75,000 thereunder and, upon his…