Shareholder Derivative Actions

  • What is a derivative action?

    Derivative actions are lawsuits filed by shareholders on behalf of the corporation to enforce a cause of action against a third party, such as an officer or director of that corporation. Derivative actions are brought when a corporation possesses, but does not enforce, its rights against third parties, which may include insiders. It is often necessary for shareholders to institute a derivative action because the corporation, which is run by officers and directors, will not bring a lawsuit against one of its own, even where there is serious wrongdoing.

  • What types of claims are filed in a derivative lawsuit?

    Derivative actions most often involve claims that officers and directors are wasting corporate assets or that a corporation's management or board of directors breached fiduciary duties owed to shareholders by negligence, mismanagement or self-dealing.

  • How do shareholders benefit from derivative actions?

    Any relief granted pursuant to a derivative action is a judgment against a third person requiring them to pay money to or make changes for the benefit of the corporation. If money is recovered as a result of a derivative action, it is paid back to the corporation.

  • May non-U.S. investors participate in U.S. shareholder derivative litigation?

    Yes. With very limited exception, all shareholders of every U.S. corporation have standing to pursue derivative litigation on that corporation's behalf.

  • Will I have to pay anything if I bring a derivative action?

    No. All expenses are advanced by Scott + Scott. Attorney's fees are paid only if a benefit is obtained for the corporation and the court approves a fee.