Business litigation matters: What is a derivative lawsuit?

The executives, officers and board members (the fiduciaries) of a corporation,whether in Maryland or another state, have a legal responsibility to the company and its shareholders to act in the company's best interest. These individuals' fiduciary duty bars them from participating in any action that unjustly enriches them or creates a conflict of interest between them and the company. An alleged breach of this duty gives rise to the right to file business litigation.

When a shareholder files such litigation on behalf of the corporation, it is called a derivative lawsuit. Many derivative suits are filed by shareholders who believe that a fiduciary -- or more than one -- is mismanaging the company, which could result in significant losses. In other cases, a fiduciary might be accused of gross negligence, illegal activities or some other transgression that is allegedly harming the company.

It will be up to the plaintiffs to prove to the court the allegations. As is the case in any other lawsuit, the fiduciaries have the right to dispute the claims being made by shareholders. These cases are often time-consuming and complex to litigate. Therefore, the parties might decide to pursue an alternative dispute resolution method such as mediation or arbitration.

Regardless of whether you are a shareholder or a fiduciary, it would be wise to enlist the assistance and advice of an attorney. Even if the parties agree to an alternative method of resolving their dispute, these options are still business litigation, and as such, require knowledge of the applicable laws and procedures. If you are considering filing a derivative lawsuit, or are defending against one, contact a Maryland attorney as soon as possible to ensure that your rights are safeguarded.

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