The title itself is a lot to take in, so let's break it down. Res Judicata is the legal principle that prevents claims that could have been litigated previously because the same parties were already in litigation from being brought at a later date in a new suit and the underlying facts are the same. A derivative claim is a claim brought in the name of the entity by its shareholders or members against the directors or managers of the company for mismanagement of the company, which may carry many different specific names. A family business is just that, a business owned by family members.
According to an opinion released this week by the Minnesota Court of Appeals, family member are in privity with each other as members of a family-owned limited liability company. As such, if one or more family members brings claims against the managers of the company, all the family members must bring their claims too. If they do not, the claims are barred under the doctrine of res judicata. The court of appeals' reasoning being that "privity" also means those of the same legal standing or with the same legal rights.
Important to this analysis is that the true plaintiff in a derivative action is the company. That is, individual shareholders or members who drive the derivative action are really only overseeing the litigation, but are not actual parties to the litigation.
What does this mean for you? If you are an owner of a company and it is heading into litigation, get your own counsel to ensure all the proper and viable claims are presented. You cannot sit back and wait to see if the other owners have success, then bring your claims. Family-owned business and derivative suits can be complex; you should not take them on without counsel.
The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney. All information contained in links are the property of the linked site.
