6.10 SHAREHOLDER DERIVATIVE SUITS AND INDIVIDUAL ACTIONS
6.1001 Derivative Suits. Suits against directors and officers for violations of the federal securities laws or for breaches of their duties to the corporation and its shareholders under state law are instituted in most cases by individual shareholders. Shareholders bring these suits either in their individual capacities or in their representative capacities as derivative suits.
Suits may be brought in a shareholder's individual capacity only when the wrongful acts of the directors and officers result in direct injury to the shareholder. 229 Plaintiffs cannot bring class actions in Virginia's state courts. If, however, jurisdiction exists over the claim in a federal district court (such as in the case of an alleged violation of the federal securities laws), the shareholder can bring the suit as a class action. Plaintiffs seeking to serve as class representatives must satisfy the requirements of Rule 23 of the Federal Rules of Civil Procedure. Suits alleging violations of the federal securities laws based on material misstatement and omissions are particularly appropriate as Rule 23 class actions.
When wrongful acts or omissions of directors and officers injure shareholders only indirectly, the cause of action against the directors and officers belongs to the corporation. 230 In these circumstances, the shareholder can maintain a suit against the directors and officers only in a derivative action on behalf of the corporation in the shareholder's representative capacity. Suits against directors and officers for breach of fiduciary duty frequently will not involve any injury directly to shareholders and will, therefore, be brought as derivative actions on behalf of the corporation.
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The Virginia Supreme Court confirmed that actions to recover for a director's breach of fiduciary duty to the corporation may be brought only in a derivative action. In Simmons v. Miller, 231 the court rejected the plaintiff's argument that there should be an exception to this rule in the case of close corporations. The corporation in the case had only two shareholders. The shareholders had a disagreement, after which the majority shareholder transferred certain assets and opportunities to another entity in which she had a controlling interest. The minority shareholder brought both a derivative and a direct action, alleging breach of fiduciary duty. Although the trial court entered judgment on the derivative claim, it struck down the direct claim. The Virginia Supreme Court affirmed this ruling, stating that "[w]e decline to adopt a closely held corporation exception to the rule requiring that suits for breach of fiduciary duty against officers and directors must be brought derivatively on behalf of the corporation and not as individual shareholder claims." 232
The language in Simmons sweeps broader than its holding and suggests that individual suits against directors for breach of fiduciary duty are never appropriate—even when the fiduciary duty breached is one owed to minority shareholders and not to the corporation itself. At least one...
