Derivative Action

A lawsuit brought by a shareholder of a corporation on its behalf to enforce or defend a legal right or claim, which the corporation has failed to do.

A derivative action, more popularly known as a Stockholder's Derivative Suit, is derived from the primary right of the corporation to seek redress of legal grievances through the courts. The procedure to be followed in such an action is governed by the rules of federal Civil Procedure and state provisions, where applicable.

derivative action

n. a lawsuit brought by a corporation shareholder against the directors, management and/or other shareholders of the corporation, for a failure by management. In effect, the suing shareholder claims to be acting on behalf of the corporation, because the directors and management are failing to exercise their authority for the benefit of the company and all of its shareholders. This type of suit often arises when there is fraud, mismanagement, self-dealing and/or dishonesty which are being ignored by officers and the Board of Directors of a corporation. (See: corporation)

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Most successful derivative actions brought on behalf of a corporation result in payments made to the company.

Escalating Risks for Directors and Officers in Shareholder Derivative Actions

Japanese shareholders suddenly found themselves as strange bedfellows with their American counterparts as the only shareholders of listed companies in the world that utilized the derivative action on a regular basis.

Japan's love for derivative actions: irrational behavior and non-economic motives as rational explanations for shareholder litigation

Further, the company stated that the dismissal comes after its 14 July 2011 announcement of a settlement for exchanged releases and not monetary payments in the Hugo v Alan B Levan et al shareholder derivative action.

BankAtlantic Bancorp receives judge's approval to dismiss shareholder derivative action

worse, it is extremely difficult to win a derivative action because of

A necessary gatekeeper: the fiduciary duties of the lead plaintiff in shareholder derivative litigation

2) Dismissal of the derivative action is the best that can result from the report, but dismissal is far from a certainty and problematically, along the way, there are any number of detriments that can result from the preparation of the report, and those detriments can easily outweigh the possibility of any dismissal.

The derivative action report: more trouble than it's worth?

The counter-argument by the DUO insurers likely would be that because the company is paying the costs of the "corporate therapeutics" and because the company is not a defendant in the derivative action, the cost incurred in adopting corporate therapeutic obligations is likely not loss under a DUO policy.

The stock options backdating scandal: D&O implications

in a stockholder derivative action alleging that the board failed to investigate alleged insider trading by Dennis J.

United States : Weil Wins Another Victory for Directors of lululemon in Shareholder Derivative Action

On November 13, the New York Supreme Court, New York County, granted a motion to dismiss a stockholder derivative action filed against the directors, officers and controlling stockholders of Weil client Fairway Group Holdings Corporation.