Document Type

Article

Disciplines

Business Organizations Law | Civil Procedure

Abstract

Trans-individual litigation has revolutionized modern law. It has radically altered the manner of assertion and adjudication of legal claims. Beyond concerning a large number of people, the underlying suits operate in a unique fashion. In particular, they call for the constant protection of the interests of the parties on whose behalf the plaintiffs purport to speak. Not surprisingly, corporate law has partaken in this phenomenon. For instance, derivative suits allow individuals to sue for a larger collectivity, somewhat along the lines of the citizen suits established over a century later. Of course, they entertain the claims of the corporation, rather than those of the society as a whole. Likewise, stockholders have deployed the class action, since its inception, to aggregate their claims specifically against the corporate entity or the board of directors. This Article concentrates on derivative suits and shareholder class actions. It ultimately contends that the two procedures resemble each other only superficially and that they diverge from each other on a more profound level. Most significantly, derivative suits aim at the vindication of a genuinely collective and indivisible right, while shareholder class actions seek to enforce an aggregation of individual entitlements. Consequently, these mechanisms also differ in the kind of representation they entail, in the objective they pursue, in how they construct fairness internally, and in how they approach the central problem of adequacy of representation. An appreciation of this dichotomy contributes to an understanding not only of the inner workings of each of these two devices but also of the corporation itself and of the relationship among the corporate entity, the board of directors, the investors, and even the stakeholders. In addition, it suggests a new interpretation of the key distinction, ever-present in the case law, between derivative and direct corporate claims. Accordingly, in order to distinguish the former from the latter, courts should focus, first and foremost, on the nature of the right at stake, following the path delineated in Part IV. At the end of the day, by grasping the difference between derivative suits and shareholder class actions, one gains invaluable insights into group rights generally.

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