What is the relationship between a class action lawsuit and a derivative action?

A class action lawsuit is a legal case in which a large group of people collectively bring a claim to court. This type of lawsuit seeks to provide justice to a group of people who have suffered a similar type of harm, like a company who has inadequately compensated their employees. A derivative action is a type of lawsuit that is brought to court by a single individual in the place of a larger group, or “class” of people. These cases are typically filed by shareholders of a company when the board of directors of the company is involved in illegal activity or wrongfully mismanages the company’s assets. The individual shareholder is suing the company in the name of the other shareholders, but the individual still retains their individual rights in the suit. The two types of suits have a unique relationship. A derivative action can be brought by a single shareholder in place of a class action. This is often times considered a more effective way to combat corporate misconduct. In this way, a derivative action can be seen as a bridge between a class action and an individual action. It allows the shareholder to act on behalf of the class but still retain their own rights. In New York, derivative actions are specifically allowed under the Business Corporation Law.

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What is the relationship between a class action lawsuit and a derivative action?

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