What is a Derivative Action and why would someone bring a Derivative Action?
Derivative Actions generally arise when a company’s owners – its shareholders in a corporation or its policyholders in mutual insurer or bank – believe that senior management is enriching itself at the expense of the company. Derivative Actions and Class Actions are similar in many respects and are sometimes brought together. Attorneys determine whether a Derivative Action and/or a Class Action is/are appropriate depending on the legal issues in a case. In the typical Derivative Action, one or more of the company’s owners demand that their corporation take action against its directors or officers and/or others for wrongdoing that harmed the corporation. If the board of directors refuses to act, the shareholder(s) or mutual policyholder(s) may bring a derivative action against the alleged wrongdoers. In these actions, the suit is actually being brought to benefit the corporation (and thus its owners).
