Litigation: Defending the shareholder derivative action and avoiding multiple forums

Recent decisions suggest at least two mechanisms that can limit exposure to derivative litigation in multiple forums

Corporations of all sizes, public and private, are susceptible to shareholder derivative suits. These cases, ostensibly brought on behalf of the corporation, are frequently used by aggressive shareholder-plaintiffs and their counsel to challenge all manner of corporate action. Moreover, corporations often do business and are subject to jurisdiction in various states. As a result, a single corporate act may be challenged in various jurisdictions at the same time in multiple derivative actions filed by geographically dispersed shareholders. The result is that the corporation (which is, ironically, supposed to be the beneficiary of the derivative action) is saddled with the burden and costs of defending virtually identical cases in multiple far-flung venues. Fortunately, recent decisions from the Delaware courts suggest at least two mechanisms that corporations and their counsel can employ to limit the corporation’s exposure to derivative litigation in multiple forums, and to minimize the burden of those cases once commenced.

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Contributing Author

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Brett D. Jaffe

Brett D. Jaffe is a partner in Cohen & Gresser LLP’s Litigation and Arbitration practice group.

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Contributing Author

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Niraj J. Parekh

Niraj J. Parekh is an associate in Cohen & Gresser LLP’s Litigation and Arbitration practice group.

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