Court Declines to Dismiss Double-Derivative Action

On September 4, 2018, Justice Scarpulla of the New York County Commercial Division issued a decision in Simon v. French-American Surgery Ctr., Inc., 2018 NY Slip Op. 32184(U), refusing to dismiss a double-derivative action, explaining:

Under New York law, double derivative actions may be brought by a minority shareholder of a parent company for harm to a subsidiary of the parent. The action may be maintained where a stockholder controls a subsidiary such that there is no independence between the parent stockholder and the subsidiary, and it cannot be expected that the controlling stockholder will authorize a suit on behalf of the subsidiary against itself for harm to the subsidiary.

Here, plaintiff alleges that he is a minority shareholder of Franclnvest, and that Franclnvest controlled JSS as the subsidiary corporation that owns the claims. Therefore, plaintiffs double derivative claims are appropriate.

(Internal quotations and citations omitted).

This decision relates to something common in complex commercial litigation--the question of whether a claim can be brought by an individual on his or her own behalf or must be brought on behalf of a corporation or other entity in which the plaintiff has an ownership stake (that is, derivatively). Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding bringing an action on behalf of a corporation or other business entity.