The Public and Private Faces of Derivative Lawsuits

48 Pages Posted: 7 Jun 2004 Last revised: 26 Aug 2017

See all articles by Robert B. Thompson

Robert B. Thompson

Georgetown University Law Center

Randall S. Thomas

Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Law School

Date Written: 2004


Derivative suits, long the principal vehicle for discussions about representative litigation in corporate and securities law, now share the stage with younger cousins - securities fraud class actions and state law fiduciary duty class actions. At the same time alternative governance vehicles - independent directors, auditors and other reforms that have followed in the wake of Enron - potentially diminish the relative place of litigation such as derivative suits. This article presents data from all derivative suits filed in Delaware over a two-year period. We find a relatively small number, certainly as compared to fiduciary class action and securities fraud class actions. Unlike these other representative suits, derivative suits are used for both public and close corporations. They arise usually in a duty of loyalty context. Contrary to earlier studies, we do not find evidence that these cases are strike suits yielding little benefit. Instead, roughly 30% of the derivative suits provide relief to the corporation or the shareholders, while the others are usually dismissed quickly with little apparent litigation activity. In cases producing a recovery to shareholders, those amounts typically exceed the amount of attorneys' fees awarded by a significant margin. They do demonstrate some indicia of litigation agency costs (for example suits being filed quickly, multiple suits per controversy, and repeat plaintiffs' law firms), but each of these is much less pronounced for derivative suits than for other forms of representative litigations. Overall, the claim that derivative suits are strike suits is much weaker than in earlier periods. The Delaware judiciary, which hears most public company corporate litigation in America, has effectively monitored these cases. There is room to open the door for larger shareholders to utilize these suits to police corporate misconduct. Institutional shareholders, while not willing to take on as large a role in governance as many have suggested in terms of naming directors and the like, may be willing to take a larger role in derivative litigation. Thus we see potential for derivative litigation to play a more important role in the future. We therefore suggest that suits brought by a one percent or larger shareholder should be excused from the demand requirement currently applied in derivative suits.

Keywords: Private law, compliance law, corporate & securities law, finance & corporate governance

JEL Classification: K22, K41

Suggested Citation

Thompson, Robert B. and Thomas, Randall S. and Thomas, Randall S., The Public and Private Faces of Derivative Lawsuits (2004). 57 Vanderbilt Law Review 1747 (2004), Vanderbilt Law and Economics Research Paper No. 04-14, Available at SSRN:

Robert B. Thompson (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States
(202) 661-6591 (Phone)

Randall S. Thomas

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States

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