Does It Walk Like a Duck? New York Appellate Court Adopts Delaware “Common Sense” Standard to Distinguish Direct and Derivative Claims

The Appellate Division, First Department of the New York Supreme Court recently adopted a test from the Delaware Supreme Court to determine whether a claim is direct or derivative. Prior to deciding the case Yudell v. Gilbert, New York courts lacked a clear approach for assessing when a claim was direct or derivative in nature, and employed a case-by-case analysis that was not always predictable. The distinction is important because derivative claims require additional action before a party can bring such claims, such as a prior demand requirement, and allow for broader defenses including the business judgment rule.

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