Also known as: derivative claim · derivative action · derivative actions · shareholder derivative suit · derivative suit
Written by attorneys · grounded in primary & secondary sources — see below
An action brought by a member or partner on behalf of a limited liability company or limited partnership to enforce a right belonging to the entity. The plaintiff must have been a member or partner when the action is commenced and when the underlying conduct occurred. Any recovery belongs to the entity rather than the individual plaintiff.
Destiny Davis acquired her membership interest in Dakota Industries after the managers allegedly diverted company funds. She filed suit to recover the assets for the LLC. Because she was not a member when the diversion occurred, the court dismissed the action for lack of standing under the contemporaneous ownership rule.
Diego Duarte, a limited partner in Dominion Capital, learned that the general partners had entered a self-dealing lease. He sued directly without first demanding that the general partners bring the action. The court allowed the suit to proceed after finding that any demand would have been futile given the general partners' conflict of interest.
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Daphne Doyle brought a successful derivative action on behalf of Duffy Construction after its managers misappropriated equipment. The court entered judgment for the value of the equipment. The proceeds were paid directly to the LLC, and Doyle received nothing personally from the recovery.
Dylan Duffy, a limited partner, settled a derivative claim against the general partners of Davenport Pharmaceuticals for unauthorized distributions. The settlement funds were deposited into the partnership's account rather than paid to Duffy individually.
Denise Donovan prevailed in a derivative suit that restored misappropriated funds to Dakota Industries. The court awarded her reasonable attorneys' fees and costs out of the LLC's recovery to compensate her for the expense of enforcing the entity's rights.
Diane Dawson, a minority shareholder, sued to recover corporate assets allegedly taken by controlling shareholders. The court permitted the action because she held shares both when the misconduct occurred and when she filed suit, satisfying the requirements for maintaining a derivative claim.
Only a person who is a member at the time the action is commenced and who was a member when the conduct giving rise to the action occurred, or whose membership devolved by operation of law from such a member.
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Any proceeds or other benefits belong to the limited liability company or limited partnership and not to the plaintiff. The plaintiff must immediately remit any proceeds received to the entity.
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If the action is successful 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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…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…