KINDS OF LAW SUITS AGAINST CORPORATIONS

Class Action Vs. Derivative Shareholder Lawsuits Class actions and shareholder derivative suits have different purposes. A class action is a lawsuit brought on behalf of multiple plaintiffs who have suffered similar injuries at the hands of similar defendants. A shareholder derivative suit, on the other hand, is an appropriate remedy when a corporation has suffered an injury affecting shareholder value but the corporation refuses to sue. Class Action Purpose

The class-action lawsuit evolved as an instrument of judicial efficiency. When multiple plaintiffs are similarly injured by the same defendant, a lawsuit by each of them can tie up the courts. Also, many individual plaintiffs do not have the time or resources to pursue a long lawsuit against a defendant who is potentially much larger and wealthier. Class actions allow multiple plaintiffs to combine and seek justice under a single representative. Class Action Mechanics

At the outset of a class action, the class representative applies to the court for certification of the class. The class representative must be a plaintiff who suffered each injury alleged on behalf of all the plaintiffs. Courts will certify a class only when shown that there are simply too many plaintiffs to reasonably join them all to an ordinary civil suit. Upon successful certification, the class representative must give reasonable notice to any other possible plaintiffs, giving them an opportunity to refuse to take part in the lawsuit (thereby preserving their own rights to bring an individual suit). State laws may vary on both certification and notice requirements. Shareholder Derivative Purposes

The shareholder derivative lawsuit was created to protect the interests of shareholders when corporations failed to do so. When a corporation sustains an injury, the corporation may or may not choose to sue on that injury. However, if such an injury harms the value of shareholders' general interests in the corporation, the shareholders may bring a derivative action, which essentially

allows them to sue for their injuries based on the injury to the corporation. However, such a suit requires, first and foremost, a valid injury upon which the corporation could have sued. Shareholder Derivative Mechanics

Before bringing a shareholder derivative suit, shareholders generally must make a formal demand that the corporation bring the suit. If the corporation refuses to bring suit (or if the shareholder presents sufficient evidence to the court that making the demand would have been futile), the shareholder may sue. However, a valid shareholder derivative suit requires a specific sort of injury: one suffered by the shareholders as a whole. Comparison

While class actions and shareholder derivative suits share certain similarities, such as the fact that they usually involve multiple plaintiffs, the purposes and procedures of the two suits are very different. Class actions allow multiple plaintiffs to consolidate claims into a single suit, while shareholder derivative suits allow shareholders to redress their losses from injuries inflicted upon the corporation. While shareholders can (and frequently do) bring class-action suits, those suits seek redress for injuries done directly to the shareholders by a certain defendant. Shareholder derivative suits are a much more specialized type of lawsuit.