Also known as: stockholders derivative suit · stockholder derivative suit · stockholder's derivative suits · shareholder's derivative suit · derivative action · derivative suit
Written by attorneys · grounded in primary & secondary sources — see below
A procedural mechanism by which an owner of an entity interest enforces a right belonging to the entity when those in control decline to do so. The owner must satisfy contemporaneous ownership and demand requirements before commencing the action. Any recovery belongs to the entity rather than the individual plaintiff.
Simone Sanders acquired her membership interest in Silverline Industries after the managers diverted a key contract. She filed a derivative action the following month. The court dismissed the suit because Simone was not a member when the conduct occurred.
Sasha Stone sent a written demand to the general partner of Southland Foods LP requesting suit over a diverted opportunity. Four months later the general partner had taken no action. Sasha filed a derivative suit and the court permitted it to proceed.
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Sofia Stern prevailed in a derivative action on behalf of Synergy Systems LLC and obtained a damages award. The judgment directed payment to the LLC rather than to Sofia personally. She immediately remitted the funds to the company accounts.
Sylvia Santos obtained a settlement in a derivative action for Sterling Dynamics LP. The court ordered the proceeds paid directly to the partnership. Sylvia received no personal distribution from the recovery.
Solomon Silver succeeded in a derivative action for Silverline Industries LLC. The court awarded him reasonable attorneys fees and costs paid from the LLC recovery. The award compensated the expenses incurred in prosecuting the claim.
Sarah Sullivan brought a derivative suit on behalf of a corporation alleging breach of fiduciary duty by directors. She demanded a jury trial on the underlying claims. The court evaluated whether the claims were legal or equitable in nature.
The plaintiff must be a member or partner both at the time of the challenged conduct and when the action is commenced. The plaintiff must also make a demand on the appropriate managers or partners unless demand would be futile.
Any judgment, settlement, or other recovery belongs to the entity itself. The plaintiff must remit any proceeds received to the entity immediately.
If the action succeeds in whole or in part, the court may award the plaintiff reasonable expenses including attorneys fees from the entity's recovery.
The right depends on whether the underlying corporate claims are legal or equitable in nature. Courts examine the character of the claims to determine whether a jury is available.
…considered the applicability in a federal diversity action of a forum state statute making the plaintiff in a stockholder's derivative action liable for litigation expenses, if ultimately unsuccessful, and entitling the corporation to demand security in advance for their payment. The trial court ruled the statute inapplicable,…