Also known as: derivative lawsuits · derivative suit · derivative suits · derivative action · derivative actions · shareholder derivative suit
Written by attorneys · grounded in primary & secondary sources — see below
A lawsuit brought by a member or shareholder on behalf of a business entity to enforce a right belonging to the entity rather than to the individual plaintiff.
Derek Douglas holds a membership interest in Duarte Shipping. After learning that managers diverted a major shipping contract to an affiliate they controlled, Derek files suit in his own name to recover the lost opportunity for the LLC. Because Derek was a member both when the diversion occurred and when he commenced the action, the court permits the case to proceed as a derivative lawsuit.
Danielle Dixon is a limited partner in Dillon Energy. She alleges that the general partners approved excessive management fees benefiting themselves. Danielle files suit after the general partners decline to act, and because she held her partnership interest at the time of the fee approvals and at filing, the court treats the claim as properly derivative.
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Daphne Doyle brings a derivative action on behalf of Decker Electronics alleging that officers misappropriated trade secrets. The parties reach a settlement that pays the LLC several million dollars. The court orders the entire amount paid directly to Decker Electronics rather than to Daphne.
Diana Delgado, a limited partner in Duffy Construction, sues derivatively after general partners award inflated subcontracts to relatives. The litigation settles for a cash payment. The court directs that the funds be paid to the partnership and not to Diana personally.
Demetrius Douglas prevails in a derivative suit on behalf of Duarte Shipping after proving that managers had diverted assets. The court awards him reasonable attorneys fees and costs paid from the LLC's recovery, leaving the net benefit with the company.
Diane Dawson, a shareholder, alleges that the board of Decker Electronics ignored repeated internal warnings about compliance violations. She files suit after demand is refused. The court evaluates whether the board's sustained inattention supports a claim that the directors breached their oversight duties.
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 suit. The member must also satisfy demand requirements or show that demand would be futile.
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Any recovery belongs to the limited liability company or limited partnership, not to the individual plaintiff. The plaintiff must immediately remit any proceeds received to the entity.
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Yes. When 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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The corporation must demonstrate that a majority of qualified, disinterested directors or a properly appointed committee of such directors made a good-faith determination after reasonable inquiry that maintaining the suit is not in the corporation's best interests.
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No. The determination may be made before or after commencement of the derivative proceeding, so long as the committee is composed of qualified directors and acts in good faith after reasonable inquiry.
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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…