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It’s tough enough dealing with a class action or whistleblower suit targeting your company. The situation gets much more complex when a shareholder simultaneously pursues a copycat derivative action. These derivative suits repeat the allegations from another direct suit against the company, but assert them on behalf of the company against its officers and directors, claiming that they breached their fiduciary duties by participating in or failing to prevent the wrongdoing alleged in the initial suit. Although the shareholder plaintiffs who bring these copycat derivative suits purport to be acting in the corporation’s best interest, they presume that the corporation is culpable for the wrongdoing alleged in the underlying litigation, even while the corporation is still contesting that claim. These copycat derivative suits can be a huge headache for corporate counsel. They can multiply litigation costs, distract the company’s leaders, and subject the company to duplicative discovery from different plaintiffs and inconsistent rulings from different courts. Worse still, they can potentially jeopardize the company’s defense in the underlying direct suit. But there are tools to stop or stay these copycat derivative suits early in the litigation process and prevent them from interfering with the company’s defense in the underlying proceedings.
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