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Derivative Or Direct?

By Joe Click

A sometimes confusing area of corporate litigation concerns whether a claim asserted by a stockholder in a lawsuit against a corporation's officers and directors is a “derivative” claim brought on behalf of the corporation, or a “direct” claim brought by the stockholder on his or her own behalf rather than the corporation's. The distinction is important, as the proper characterization of a stockholder claim can have a significant impact on the parties and how the lawsuit proceeds, in some instances determining whether it proceeds at all. In a new opinion, Tooley v. Donaldson, Lufkin & Jenrette, Inc., No. 18414 (Del. S. Ct. April 2, 2004), the Delaware Supreme Court has cleared up some of the confusion, holding that a claim is derivative whenever the corporation has suffered the alleged harm and will be the beneficiary of the relief granted by the court.

Derivative v. Direct Claims

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