Section 1506. Stockholder’s Derivative Action

(a) In an action to enforce a secondary right brought by one or more stockholders or members of a corporation or similar entity because the corporation or entity refuses or fails to enforce rights which could be asserted by it, the complaint shall set forth

(1) that each plaintiff is a stockholder or owner of an interest in the corporation or other entity,

(2) the efforts made to secure enforcement by the corporation or similar entity or the reason for not making any such efforts, and

(3) either

(i) that each plaintiff was a stockholder or owner of an interest in the corporation or other entity at the time of the transaction of which the plaintiff complains or that the plaintiff’s stock or interest devolved upon the plaintiff by operation of law from a person who was a stockholder or owner at that time, or

(ii) that there is a strong prima facie case in favor of the claim asserted on behalf of the corporation and that without the action serious injustice will result.

Official Note

See Section 1782(c) of the Associations Code, 15 Pa.C.S.A. § 1782, providing for security for costs in stockholder’s actions.

(b) A plaintiff who files a complaint containing an allegation pursuant to subdivision (a)(3)(ii) shall forthwith file a motion to maintain the action. If the plaintiff sustains the allegation, the court shall allow the action to continue.

(c) If it appears that the plaintiff does not fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association, an appropriate person shall be substituted as plaintiff or, if an appropriate person is not substituted, the action shall be dismissed as provided by subdivision (d).

(d) The action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to shareholders or members in such manner as the court directs.

(e)(1) Section 1782(a) and (b) of the Associations Code, 15 Pa.C.S.A. § 1782(a) and (b), shall be suspended only insofar as it is inconsistent with the provisions of this rule.

Official Note

Section 1782(a) and (b) of the Associations Code relate to the bringing of a shareholder’s action.

(2) Section 1782(c) and (d) of the Associations Code, 15 Pa.C.S. § 1782(c) and (d), shall not be deemed suspended or affected by this rule.

Official Note

Section 1782(c) and (d) relate to security for costs in such actions and applicability of the statute to foreign corporations.

The provisions of this Rule 1506 amended September 26, 1990, effective January 1, 1991, 20 Pa.B. 5195; amended April 12, 1999, effective July 1, 1999, 29 Pa.B. 2274. Immediately preceding text appears at serial pages (223272) to (223273).