Brooklyn Law Review


Jamie D. Kurtz


Mutual funds differ greatly from traditional corporations in the way they are formed and operated. Despite these differences, courts apply the same rules for derivative shareholder litigation to both types of entities. While these rules make sense and were mostly created with corporations in mind, courts have generally been unwilling to consider mutual funds’ unique characteristics in determining whether to allow direct litigation from shareholders. This note explores those unique characteristics and the usual policy reasons for requiring derivative litigation. It concludes that in most cases these unique characteristics make a derivative suit nearly impossible to sustain. Further, the normal reasons for requiring a derivative suit are not as prevalent in mutual funds. As a result, it proposes a new way of evaluating direct shareholder suits in the context of mutual funds.