Also known as: direct suits · direct action
Written by attorneys · grounded in primary & secondary sources — see below
A lawsuit brought by a shareholder or member to enforce personal rights or interests against the corporation, another member, a manager, or the entity itself.
Diana, a permanent resident domiciled in State A, sued Insureco alone after her expulsion from Grove Institute. Insureco, incorporated in State D with its principal place of business in State E, moved to dismiss for lack of diversity. Because the suit was a direct action against the liability insurer without joining the insured, the court imputed Grove's citizenship to Insureco and dismissed the case.
Uriah and Cole formed Bright Lodging LLC. Cole diverted bookings to his own agency and revoked Uriah's promised employee discount and complimentary stays while extending similar benefits to the other members through side agreements. Uriah sued Cole and the LLC directly to recover his individual losses.
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Delilah Duran and Derek Douglas formed a limited partnership to develop commercial property. Derek diverted partnership funds to a side venture, reducing Delilah's expected distributions. Delilah filed a direct action against Derek and the partnership to enforce her rights under the agreement.
Diane Dawson, a member of Dakota Industries LLC, alleged that the manager's self-dealing reduced company revenue. She sued the manager directly but failed to plead any injury separate from the harm to the LLC itself. The court dismissed the direct action for lack of a qualifying personal injury.
Deborah Dunn and other stockholders of Delta Dynamics tendered shares in a merger. The board extended the closing date, delaying payment. Deborah sued the directors directly, claiming violation of her individual contractual right to timely payment once her shares were accepted.
The member must plead and prove an actual or threatened injury that is not solely the result of an injury suffered or threatened to be suffered by the limited liability company.
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In a direct suit the shareholder enforces personal rights and keeps any recovery. In a derivative suit the shareholder asserts a corporate cause of action and any recovery belongs to the corporation.
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The rule applies in any direct action against the insurer of a liability policy when the insured is not joined as a party defendant, causing the insurer to be deemed a citizen of the insured's states of citizenship in addition to its own.
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Yes. The uniform limited partnership act permits a partner to maintain a direct action to enforce personal rights without requiring a demand on the entity.
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…appeal: as a matter of Delaware law, can the creditor of a corporation that is operating within the zone of insolvency bring a direct action against its directors for an alleged breach of fiduciary duty? It is well established that the directors owe their fiduciary obligations to the corporation and its shareholders. While…