A shareholder derivative action is a lawsuit brought by a shareholder for the benefit of a company, often to remedy breaches of fiduciary duty by officers and directors. Directors are responsible for pursuing legal action when a company is harmed; however, they often ignore their responsibilities to cover up their own wrongdoing. When this happens, a shareholder can step in and file a lawsuit on behalf of the company.

Shareholder derivative lawsuits enable shareholders to hold corporate wrongdoers accountable for the injuries they impose on the company. A successful shareholder derivative lawsuit can restore wholeness to a company, improve corporate governance practices, and prevent repeat offenses.

Remedies commonly sought in derivative actions include corporate governance reforms designed to prevent future fiduciary misconduct, the removal of officers or directors whose misconduct injured the corporation, monetary payments to remedy damages incurred by the company, and repayment of funds obtained illegally.

A shareholder who wants to pursue a shareholder derivative action must fulfill certain requirements to bring a case:

• Have acquired the stock in the company prior to the time the wrongful conduct began
• Hold the stock at the time the lawsuit is initiated
• Maintain a minimum number of shares in the company during throughout the lawsuit

If a representative plaintiff sells their shares prior to the resolution of the lawsuit, they will lose standing because they are no longer considered to have an interest in the matter.

In a shareholder derivative action, the representative plaintiff pursues claims on behalf of a corporation and benefits indirectly as a shareholder from any corporate governance reforms or monetary recovery obtained for the corporation. In a securities fraud class action, the lead plaintiff pursues claims on behalf of themselves and a class or classes of similarly situated shareholders to obtain monetary and other benefits directly for the members of the class.

As a shareholder, you will pursue a claim on behalf of the corporation, not for yourself personally. As a plaintiff in a shareholder derivative action, you must act in the best interest of the corporation and all shareholders. Your goal is to ensure corporate accountability and transparent, honest, and effective corporate governance. You are responsible to stay informed about significant developments in the case as you work with one or more attorneys to make important strategic decisions over the course of the litigation. As a shareholder plaintiff, you most likely need to continue to own stock in the company to pursue this type of litigation.

A shareholder derivative action typically takes two to three years to litigate. However, each case is unique and some cases can be resolved in less time, while others may take longer. Certain factors that can influence the length of a shareholder derivative action include whether the court requires a demand to be served on the company for informal resolution of the matter prior to filing a complaint, challenges to jurisdiction and venue, discovery disputes, judicial changes, and appeals, to name a few.

Yes. If you are a member of the class, you are entitled to file a claim to recover your portion of the class action settlement proceeds.

No. Representative plaintiffs in actions brought by Robbins LLP are not responsible for paying attorneys’ fees or expenses. All costs and expenses of the litigation are advanced by Robbins LLP. We only recover our fees and costs – paid for by defendants – if we are successful in obtaining a substantial benefit for the corporation.