Also known as: derivative claims · derivative action · derivative suit
Written by attorneys · grounded in primary & secondary sources — see below
An action brought by a member or partner to enforce a right belonging to a limited liability company or limited partnership. The plaintiff must have been a member or partner both when the conduct occurred and when the action is commenced. Any recovery belongs to the entity rather than the individual plaintiff.
Delilah Duran held a membership interest in Dakota Industries when a manager diverted company funds. She remained a member when she filed suit after the manager ignored her request that the LLC pursue recovery. The court permitted the action because Duran satisfied the contemporaneous-ownership and demand requirements.
Darius Dixon acquired his limited partnership interest in Dynamic Solutions before the general partner misappropriated a contract opportunity. He remained a partner at filing and had made a written demand that went unanswered for four months. The court allowed the derivative action under the proper-plaintiff statute.
Select any source to read its text and confirm it supports the definition.
Dorothy Daniels prevailed in a derivative suit on behalf of Dillon Energy after proving the managing member had diverted receivables. The judgment awarded the LLC several hundred thousand dollars. The court directed that the entire sum be paid to the company and not to Daniels personally.
Dylan Duffy settled a derivative action for Dawson Steel after the general partner had overpaid an affiliate. The settlement funds were deposited directly into the partnership's operating account. Duffy received none of the money and immediately remitted any portion that briefly passed through his hands.
Diane Dawson obtained a partial recovery for Dakota Industries in a successful derivative suit. The court found that her efforts conferred a substantial benefit on the LLC. It therefore ordered the company to reimburse Dawson for reasonable attorneys' fees and costs from the amount recovered.
Dustin Donovan held a membership interest in Dakota Industries when a manager diverted company funds. He remained a member when he filed suit after the manager ignored his request that the LLC pursue recovery. The court permitted the action because Donovan satisfied the contemporaneous-ownership and demand requirements.
Only a person who is a member both at the time the challenged conduct occurred and at the time the action is commenced may maintain the claim. The plaintiff must also satisfy the demand requirement or show that demand would be futile.
All proceeds belong to the limited liability company or limited partnership. The plaintiff must immediately remit any funds received to the entity.
If the action succeeds in whole or in part, the court may order the entity to pay the plaintiff's reasonable expenses, including attorneys' fees, from the recovery.
A plaintiff generally must wait ninety days unless the demand is rejected earlier or irreparable injury to the entity would result from further delay.
The plaintiff must plead with particularity facts showing that the determination was not made in good faith after a reasonable inquiry or was not in the entity's best interests.
…It would be illogical to accept the right of a wife to recover in contract for breach of warranty and to hold that the husband’s derivative claim was not within the contemplation of the parties when the agreement of sale was made. For this reason it was proper to submit Henningsen’s consequential losses to the jury as an element of…