Originally from:
Advising Minnesota Corporations and Other Business Organizations - 2nd Edition - Hardcover
Advising Minnesota Corporations and Other Business Organizations - 2nd Edition - Electronic
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CHAPTER 79
SHAREHOLDER DERIVATIVE ACTIONS
AND RELATED SHAREHOLDER SUITS
Section
§ 79.01 Derivative Actions
§ 79.02 Authorization of Derivative Suits
§ 79.03 Requirements for Derivative Suits
§ 79.04 --Enforcement of Corporate Right
§ 79.05 --Stock Ownership
§ 79.06 --Demand on Corporation
§ 79.07 --Fair Representation
§ 79.08 --Dismissal and Compromise
§ 79.09 --Attorneys’ Fees
§ 79.10 Direct Shareholder Suit
§ 79.01 Derivative Actions
For shareholders who believe their corporation is receiving bad
information, being poorly managed, being defrauded by an insider or
outsider, or generally operating unprofitably, a primary weapon is a
derivative action. A derivative action is an action brought by the
shareholder on behalf of the corporation after the corporation decides not
to bring an action. Because the corporation has a separate identity from
its shareholders, corporate causes of action belong to the corporation, not
the constituent shareholders.1 Breach of a duty to the corporation by
officers, directors, or controlling shareholders may provide the basis for a
shareholder to bring suit to recoup losses on behalf of the corporation.
Certain steps must be followed before a shareholder may pursue a
derivative action.
The inability of a shareholder to assert a corporate cause of action led
to abuses by those in control of the corporation. Often, a dominant
shareholder would prevent the corporation from asserting rights that
were against his or her own personal interests.2 Thus, equity developed a
specific remedy: the derivative suit.3 The suit evolved in the court of
equity as a mechanism for shareholders to combat management
misconduct.4
Derivative actions are suits brought by shareholders, to enforce a
corporate right and indirectly to protect the shareholder’s corporate
interest, on behalf of the corporation that has decided not to pursue the
cause of action.5 Derivative suits are seen as equitable actions, and any
recovery goes to the corporation.6 While corporations are often named
defendants, the suit is brought on behalf of the corporation and it is a
Roger J. Magnuson is a Partner at Dorsey and Whitney, LLP, where he serves as Head of the National Strategic Litigation Group and has practiced since 1973. He has been recognized as one of the top trial lawyers in the United States by major national and international publications, including Chambers International Guide to American Lawyers, which profiles the top 500 trial lawyers in the United States, Best Lawyers in America, Who's Who in American Law, and Who's Who in America. Mr. Magnuson was also recognized by a Journal of Law and Politics' survey for Judge's Choice "Wins Most Cases."
Some high profile cases that he has litigated include representation of the Florida Senate in the Bush v. Gore election controversy in 2000; and representation of the Plaintiffs in the widely publicized and studied Mall of America case. For several years he has represented, among other persons and entities, the Minnesota Twins and Major League Baseball principals and players in litigation; and has litigated national and local cases in federal and state court venues. He has appealed before the Supreme Court in a number of cases; as well as the Minnesota Supreme Court. He has authored several articles and 7 books.
Richard A. Saliterman is a Principal in Saliternan & Siefferman P.C., a full-service firm in Minneapolis established in 1976. Mr. Saliterman is a leading expert on corporate business matters, and is the author of several publications on business start-ups, franchises, and trademarks. Mr. Saliterman is the former National Judge Advocate for the U.S. Navy League, based in Washington D.C.
Contributing Editor:
Amanda Chang
Contributing Authors:
Alecia Anderson
Seth Back
John Baker
Shannon Berg
Constatin Burachek
Benjamin Carpenter
Ryan Check
Carl Christensen
Peter Fear
Michael Frasier
Aaron Hall
Catherine Hanson
Paul Harman
Amy Ithlan
Michael Kern
Chris Kuhlman
Brett Larson
Joshua Lederman
Karen Lundquist
James Magnuson
Jennifer Mead
Rao Menier
Heidi Miller
Rachael Moxon
Oliver Nelson
Scott Peitzer
Mitchell Skinner
Jonathan Stechmann
Lael Weinberger
Jonathan Wilson
Alex Zumbulyadis