Shareholder Derivative Action Or Shareholder Derivative Suit?

A legal proceeding brought in a representative capacity is sometimes referred to as a “shareholder’s derivative action” and sometimes as a “shareholder’s derivative suit”.  Which is correct? It turns out that the General Corporation Law doesn’t use the term “derivative”.  Section 800 of the Corporations Code refers to an action “instituted or maintained in right

Agreement To Arbitrate “Any Disputes” Doesn’t Reach Derivative Claims

Corn v. Superior Court, 2016 Cal. App. Unpub. LEXIS 6182 (Cal. App. 2d Dist. Aug. 22, 2016) is a case about the meaning of one sentence in a settlement agreement consisting of just seven words – “The Parties agree to arbitrate any disputes”.  The precise question was whether these seven words barred the petitioner from instituting a derivative action.  The

10th Circuit Highlights Difference Between Delaware And Nevada Exculpatory Statutes

Because the power to manage a corporation’s affairs rests with the board of directors, it is normally up to the board to decide whether the corporation will pursue a claim.  A shareholder who believes that the corporation should sue must therefore make a demand on the board.  If the board decides against suing, then the

Court Finds Plaintiffs Are Not Privies

Yesterday’s post noted that the plaintiff in a derivative suit is bringing claims on behalf of the corporation.  Thus, when a derivative suit is dismissed, does that dismissal have any effect on other pending or subsequently filed derivative suits?  This is a topic that I first discussed a few years back in Delaware Court of Chancery “Overrules” Federal Court.  That post was critical of

Compromising and Settling of Derivative Suits In California

When a shareholder sues derivatively, the shareholder is seeking relief not for itself, but for the corporation.  Therefore, it should be expected that the shareholder is not free to compromise or dismiss the suit absent court oversight.  For example, Rule 23.1 of the Federal Rules of Civil Procedure provides: A derivative action may be settled, voluntarily

Court of Appeal Says Same Counsel Can’t Represent Corporation And Individual Defendants in Derivative Suit

Derivative suits put the corporation in the odd position of simultaneously occupying the position of a defendant and plaintiff.  When the suit is initiated, the corporation is named as a nominal defendant.  If, however, the suit is allowed to proceed, then the corporation is the “real” plaintiff.   What does this mean for attorneys who seek

Why Is California’s Derivative Suit Statute Stuck In 1977?

California Corporations Code Section 800 governs derivative suits brought by both domestic and foreign corporations.  The statute provides a modicum of protection to defendants by establishing a procedure by which either the corporation or an individual defendant may move the court to require the plaintiff, as a condition to maintaining the action, to supply a

The Most Important Principles of Delaware Corporate Law Can’t Be Found In the DGCL

I have often observed that you can read every section of the Delaware General Corporation Law and learn almost nothing about Delaware corporate law.  Here are three of the most fundamental principles of Delaware corporate law that you won’t find in the DGCL: The business judgment rule.  This venerable presumption is derived from, but not stated

Failure To Follow Up Demand Dooms Derivative Suit

Shareholders wanting to pursue a derivative suit all come to the same fork in the road.  One fork is to make a demand.  The other is to file a lawsuit and allege that demand would have been futile.  Most plaintiffs choose the latter because the act of making the demand terminates their ability to pursue

Professor Bainbridge Takes On S.B. 75 And The Delaware Bar

UCLA Law Professor Stephen Bainbridge recently posted an article calling Delaware’s recently enacted S.B. 75 a “self-inflicted wound”.   SB 75, which was signed into law late last month, limits the ability of Delaware stock corporations to adopt so-called “fee shifting” bylaw provisions. What I find particularly interesting is Professor Bainbridge’s thesis that the Delaware legislature