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Northern District of Illinois Federal Court Dismisses Double Derivative Shareholder Action Due to Lack of Parent / Subsidiary Corporate Relationship

Members of the board of directors of a corporation have the responsibility to orchestrate the business in such a way that is advantageous to the shareholders and the continued growth and prosperity of the company. However, there are times when those directors may act in a way that serves their own interests, and the only way to protect the business is for shareholders to file a derivative suit on behalf of the company. DiTommaso-Lubin is always researching new developments in this field of law, and our Chicago shareholder derivative action attorneys recently came across one such case filed here in the Northern District of Illinois, Eastern District federal court.

Reiniche v. Martin is a double derivative suit brought by individual plaintiffs who are shareholders of a corporation, Health Alliance Holdings (HAH), that itself is a primary shareholder of HA Holdings (Holdings), another corporation. Plaintiffs allege that Defendants sought to freeze them and other HAH shareholders out through a series of illegal and wasteful acts that resulted in an insider transaction to sell Holdings for $10 and debt relief to another company in which Defendants had an interest. That transaction was approved by Holdings’ board of directors in spite of the fact that there was no quorum present to do so, and HAH was denied its right to sit on the board. In doing so, Plaintiffs alleged that the Defendant directors and other shareholders of Holdings breached their fiduciary duties to the company. Defendants then moved to dismiss the suit under Federal Rule of Civil Procedure 12(b)(6), claiming that Plaintiffs lacked standing, their claim was untimely, and the claims are insufficient under the law and barred by the business judgment rule.

The Court held that Plaintiffs did not have double derivative standing because such standing is only granted in the context of a parent/subsidiary relationship, and HAH was only a shareholder in Holdings – it was not a parent or holding company of Holdings. The Court went on to say that because the individual Defendant shareholders were each minority owners, none of them had a controlling interest in Holdings, and therefore did not owe a fiduciary duty to the Plaintiffs. As such, the Court found no policy reason for invoking a double derivative action and granted Defendants’ motions to dismiss.


DiTommaso-Lubin is a litigation firm based in Chicago, Illinois that concentrates in handling the legal issues confronting businesses in today’s world. We represent both plaintiffs and defendants, and we have experience representing clients in matters ranging from breaches of fiduciary duties to shareholder disputes. Our attorneys have over two and a half decades of experience in business litigation and have won favorable verdicts in many “bet the business” lawsuits. DiTommaso-Lubin’s business litigation lawyers can identify and understand the legal issues in any dispute, no matter how complex they may be. We will use our resources and knowledge to formulate a plan of action that will help further your interests, resolve your problems, and get you back to growing your business. Our focus with each client is to understand and settle the legal issues efficiently and with minimal costs, while still providing outstanding representation. If your business is being sued, or you are seeking advice to stay out of court, call our Downers Grove business attorneys to discuss what DiTommaso-Lubin can do for you. For a consultation, call 1-877-990-4990 or send us an email through our website.