In a recent case presided over by Manhattan Commercial Division Justice Melissa A. Crane, an infrequently-litigated question has been in focus – can a shareholder causing a derivative lawsuit face a countersuit individually?
The case in question, Simon v FrancInvest, S.A. (2023 NY Slip Op 32422[U] [Sup Ct, NY County July 7, 2023]), has been a battleground for almost a decade, and it involves a family-owned medical practice known as the French-American Surgery Center (the “Surgery Center”).
For the uninitiated, a derivative lawsuit is one where a shareholder sues on behalf of a corporation. Typically, the shareholder seeks to correct an injustice or illegality that the corporation’s directors or officers have allegedly committed. Usually, any settlements or damages awarded from such lawsuits go to the corporation and not the shareholder who initiated the lawsuit.
This particular case brings forth an interesting question – can the same shareholder be countersued individually in connection to the same lawsuit? While the exact details of Simon v FrancInvest, S.A. are not readily accessible, this case has brought the peculiar situation to light. Given the rarely traversed territory this issue dwells in, the decision could potentially pave the way for subsequent cases that find themselves wrestling with similar questions.
Although far from a common occurrence, shareholders causing derivative lawsuits should be wary of situations where they may face a countersuit on an individual basis. Navigating such uncharted legal terrain might be risky, but it is critical. For up-to-date information on this and other related topics, legal professionals should refer to JD Supra.