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Flashcards in Shareholder derivative suits Deck (4)
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1
Q

Derivative suit

A
  1. derivative suit: suit where a shareholder sues to enforce the corporation’s claim
  2. can only be brought if the corporation could have brought the suit
    i. ex. breach of fiduciaries duties, because they are owed to the corporation
  3. cannot bring derivative suits personal to the SH, since the corporation is not hurt
    i. must be brought as a direct claim
    ii. ex. controlling SH oppression of minority SHs
2
Q

Recovery

A
  1. judgment is paid to the corporation
  2. plaintiff shareholder receives costs and attorneys’ fees, usually from the judgment won
  3. losing plaintiff shareholders
    i. cannot recover costs and attorneys’ fees
    ii. can be liable to the defendant sued for their costs and attorneys’ fees
  4. claim preclusion applies: later SHs cannot bring the same suit
3
Q

Requirements for derivative lawsuit

A
  1. stock ownership both when the claim arose and throughout the suit
    i. plaintiff must have owned stock at the time the claim arose or have gotten it by operation of law (inheritance or divorce decree) from an owner
  2. adequate representation of the corporation’s interest.
  3. written demand
    i. plaintiff SH must demand in writing (usually to BoD) that the corporation bring suit
    a. many states: demand must be made and cannot sue until 90 days after it
    ii. demand futility: no need to make demand if it would be futile (ex. majority of BoD are defendants in the suit)
  4. corporation must be joined as a defendant
    i. weird procedural quirk
4
Q

Termination

A
  1. parties can only settle or dismiss a derivative suit with court approval
    i. court may give notice to shareholders and get their input on whether to dismiss or settle
  2. corporation can move to dismiss if independent investigation shows the suit is not in the corporation’s best interest
    i. ex. low chance of success or expense would exceed recovery
    ii. investigation must by independent directors or an independent court-appointed panel
    iii. court will assess if persons recommending dismissal are independent
    iv. in some states, court will independently assess whether dismissal is in company’s best interest