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What is a derivative action?
A derivative action is a lawsuit brought by a shareholder of a corporation, 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. It is often necessary for a shareholder to institute a derivative action because the corporation, which is run by officers and directors, will not bring a lawsuit against one of their own, even if there has been serious wrongdoing.
What types of charges are filed in a derivative lawsuit?
Derivative actions most often involve charges 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.
Do I have to own stock in the company to bring a derivative action?
Yes, you must be a current shareholder and continue to hold the stock until the derivative action is resolved.
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 would be paid back to the corporation, which could have a positive effect on the company's stock price and benefit all current shareholders.
Will I have to pay anything if I bring a derivative action?
No. All expenses are advanced by Bernstein Litowitz Berger & Grossmann LLP. We will recover attorney's fees only if we obtain a benefit for the corporation and the court approves a fee.
