derivative suit

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Stockholder Derivative Suit

A lawsuit filed by one or more shareholders of a publicly-traded company in the name of the company. Often, this lawsuit is filed against a member of the company's management who committed an illegal, unethical, or negligent act. Directors' and officers' liability insurance can protect the management from losses as the result of one of these lawsuits. They are also called derivative suits and derivative action.
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derivative suit

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Gingerich seems skeptical of the likelihood of success of a derivative suit, considering the importance of the business judgment rule.
This is because the Delaware Chancery Court has taken a rather generous view of when a plaintiff meets the requirement in question: The court will only dismiss the derivative suit on this ground if the defendant can show that "a serious conflict of interest exists." (256)
DERIVATIVE SUITS: A lawsuit, usually by a shareholder of a corporation, brought under state law on behalf of the corporation, to enforce or defend a legal right or claim of the corporation.
[I]n the United States, high attorneys' fees charged on a contingency basis encourage attorneys to seek out potential derivative suit plaintiffs.
(38.) More pragmatically, if it is less expensive for a corporation to indemnify its directors against the damage amounts claimed in a shareholder derivative suit than to bear the costs of inquiry required to seek judicial dismissal of the suit, more "meritless derivative proceedings" might be filed "in order to generate small but immediately payable attorneys' fees." MODEL BUS.
The plaintiff in a parallel derivative suit can then take this same allegation and assert that the officers and directors breached their fiduciary duty to the corporation by causing the corporation to make false statements or by causing the underlying financial problems resulting from the misstatements.
The shareholder derivative suit, filed by shareholder John G.
"Aflac Incorporated is pleased that the derivative suit filed against the company late last year by three current or former independent agents has been dismissed in its entirety.
So a corporation in a derivative suit, although technically a defendant, is generally aligned with the plaintiff.
In Investors Bancorp, a derivative suit was filed against the company's board for a breach of the directors' duty of loyalty, alleging that the directors awarded themselves excessive stock-based compensation.

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