Derivative Action

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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)

References in periodicals archive ?
Reed and Lloyd analyze the importance of the rulings in the case, writing that they create a tension with the practice of requiring a shareholder request a companys books and records before pursuing a derivative suit.
Case law has interpreted this last pre-requisite to mean that complainants in a derivative suit, as opposed to a shareholder class action, must first "exhaust [.
The welfare implications of stockholder litigation in general and the derivative suit in particular are hotly disputed in corporate law scholarship.
The case started in 2014, when a shareholder plaintiff brought a derivative suit against the board of directors of Citrix Systems, Inc.
The derivative suit detailed the alleged efforts of Alliance to "wash away" the "egregious" losses incurred by the company.
Furthermore, the derivative suit moves to install an interim management committee to oversee the finances of Alliance Select.
Once Wal-Mart's bribery scandal made headlines, the California State Teachers Retirement System (CalSTRS), concerned that Wal-Mart's bribery practices and the corresponding potential for hefty penalties would negatively impact its substantial holdings in Wal-Mart, filed a shareholder derivative suit against Wal-Mart's board in the Delaware Court of Chancery.
com's eight year history, we've never been joined in a shareholder's derivative suit," says Jonathan Johnson, president.
Nonetheless, unlike the dockets of other types of cases, the dockets of derivative suits typically note that the case is a derivative suit on the docket itself, usually by specifying that the shareholder sued derivatively on behalf of the plaintiff corporation.
According to West's Encyclopedia of American Law, derivative suits enforce legal rights when the corporation itself is unwilling to sue its own officers or directors.
of the Branstetter firm said the derivative suit is different from a class-action in that no class of plaintiffs needs to be certified for the case to move forward and the company itself is a defendant in name only.