Scholars and judges often say that the United States imported the shareholder derivative action from England, but that is not entirely accurate. What the United States imported from the English Court of Chancery was the necessary parties rule and its exceptions. During the 1800s, U.S. courts recognized an exception to the necessary parties rule that permitted representative lawsuits, but the contours of these actions differed from such actions in England. Today, these lawsuits would be classified as class actions and shareholder derivative actions in the United States. The shared history of these two forms of representative litigation has long been overlooked, but it reveals the early normative justifications for shareholder litigation. For the United States’ first 150 years, similar to class actions, shareholders were permitted to bring lawsuits on behalf of themselves and all other shareholders in certain circumstances. That formulation did not change until the late 1940s, when courts began to regularly describe such lawsuits as being brought on behalf of the corporation. This Article will explore the reasons for this shift in the nature of shareholder derivative litigation as well as the changes in the limitations on when shareholders can bring such actions. It will conclude by suggesting the implications that the historical and normative foundations of shareholder derivative litigation may have on the modern corporate law debates.
Scarlett, Ann M., "Shareholder Derivative Litigation’s Historical and Normative Foundations" (2013). All Faculty Scholarship. 52.