Chicago Business Litigation Lawyer Blog
In Illinois, a derivative lawsuit can be filed by an individual shareholder or a member of a limited liability company (LLC) to enforce a right that belongs to the corporation or the LLC (Silver v. Allard, 16 F.Supp.2d 966 (1998)), (Pistone v. Carl, Not Reported in N.E. Rptr. (2020). The aim of such a lawsuit is to protect the interests of the corporation or the LLC from the misconduct of its directors and managers (Silver v. Allard, 16 F.Supp.2d 966 (1998)).
There are certain prerequisites for filing a derivative lawsuit. Firstly, the shareholder or member must make a demand upon the board of directors to enforce a corporate right (Silver v. Allard, 16 F.Supp.2d 966 (1998)). However, this demand requirement can be excused in certain situations. For instance, if the shareholders can demonstrate that the directors were aware of the misconduct but consciously chose not to act, the demand can be excused. In such cases, the plaintiffs would effectively be arguing the futility of such a demand. It’s important to note, as per Illinois choice of law rules, that the pre-suit demand requirement is governed by the law of Delaware in the case of corporations incorporated there (Wells v. Reed, — N.E.3d —- (2024).
Another basis for a derivative lawsuit can be if the directors engage in omissions not in good faith or intentional misconduct concerning violations of law (In re Abbott Laboratories Derivative Shareholders Litigation, 325 F.3d 795 (2003)). Illinois law also permits derivative suits against third parties, such as former directors (Davis v. Dyson, 387 Ill.App.3d 676 (2008). In these cases, the plaintiffs effectively step into the shoes of the association.
A shareholder may bring both a derivative action and an individual claim simultaneously if the shareholder has suffered a different injury than his fellow shareholders (Pistone v. Carl, Not Reported in N.E. Rptr. (2020), (Caparos v. Morton, 364 Ill.App.3d 159 (2006)), (Caulfield v. Packer Group, Inc., 2016 IL App (1st) 151558 (2016), (Koehler v. Packer Group, Inc., Not Reported in N.E. Rptr. (2020)).
Lastly, the court will not disregard the corporate form unless it is proven that the corporation and the individual share “such unity of interest and ownership” that they no longer have separate identities and the continued observance of separate identities would “sanction fraud or promote injustice” (Cement-Lock v. Gas Technology Institute, 618 F.Supp.2d 856 (2009)).
Moreover, the Illinois Limited Liability Company Act ((LLC Act)) also provides for the awarding of attorney fees in successful derivative actions, as part of its provisions (Tsai v. Karlik, Not Reported in N.E. Rptr. (2022).
Please note that these are general guidelines and the specifics may vary based on the circumstances of each case.
Before deciding to retain a specific law firm like Lubin Austermuehle, it’s important to consult directly with them, discuss your case, and understand how they plan to approach your lawsuit. Checking reviews, seeking referrals, and comparing their service with other firms can also help ensure that you choose the right legal representation for your needs. Contact us for a free consultation online or at 630-333-0333.