Four Of The Most Common Issues In Shareholder Derivative Lawsuits
Shareholder derivative lawsuits fall into two categories: Direct lawsuits and derivative lawsuits. With a direct claim, a shareholder is filing a lawsuit on their own behalf. With a derivative claim, a shareholder is filing a lawsuit on behalf of the corporation itself. The Cornell Legal Information Institute notes that derivative claims are usually filed when the “defendant in the suit is someone close to the company, like a director or a corporate officer.” Here, our Miami shareholder dispute attorney highlights four of the most common issues in shareholder derivative litigation.
- Breach of Fiduciary Duty
A fiduciary is an individual (or entity) placed in a position of legal/ethical trust. It is the most comprehensive standard of care under American law. Corporate officers and corporate directors owe a fiduciary duty to the company. In effect, a fiduciary duty requires corporate leadership to act in the best interests of the business. Among other things, this means that they have to put the corporation’s interests above their own personal financial interests when acting in a professional capacity.
- Corporate Waste, Fraud, and Abuse
A shareholder has an ownership stake in a corporation. Ultimately, this means that they have a direct interest in ensuring that the corporation’s assets are used properly. After all, the company’s assets are essentially their own assets—even if they only own a tiny percentage of the overall corporation. If corporate assets are being wasted, defrauded, or otherwise abused, a shareholder could file a derivative lawsuit to protect the company if officers/directors fail to take action.
- Excessive Payment of Executive Compensation
Executive compensation is often an issue in shareholder derivative claims. The challenge is that the people who decide how much an executive gets paid are sometimes other executives. In certain circumstances, corporate officers, corporate directors, or other decision-makers may not properly prioritize the interests of the company. A shareholder derivative claim may be warranted if assets are being used to pay unreasonably excessive compensation packages to executives.
- Misappropriation of Corporate Opportunity
Business opportunities are a type of financial asset. When a company misses out on a valuable corporate opportunity, they can cause significant financial harm to the shareholders. If a corporate officer, corporate director, or key decision-makers takes an opportunity for themselves (or another company that they have an interest in, they may be guilty of misappropriation. Shareholders have a right to file a derivative action to challenge the wrongful misappropriation of a valuable corporate opportunity.
Call Our Miami, FL Shareholder Dispute Attorney for Help With Your Case
At Pike & Lustig, LLP, our Florida shareholder rights lawyers represent clients with the highest level of professionalism and legal expertise. If you have any questions or concerns about shareholder derivative litigation, we are more than happy to help. Get in touch with us today for your confidential consultation. Our firm handles shareholder claims in Miami, West Palm Beach, Jupiter, Miami Beach, Boca Raton, Deerfield Beach, Coral Gables, Hialeah, Fort Lauderdale, and beyond.
Resource:
law.cornell.edu/wex/shareholder_derivative_suit#:~:text=A%20shareholder%20derivative%20suit%20is,has%20refused%20to%20use%20it
