§ 5782 — Eligible member plaintiffs and security for costs

(a) General rule.--Except as provided in subsection (b), in any action or proceeding brought by one or more members of a nonprofit corporation to enforce rights that the plaintiff claims could be, but have not been, asserted by the corporation, each plaintiff has standing to commence and maintain the derivative action if the plaintiff:

(1) was a member of the corporation at the time of the transaction or conduct of which the plaintiff complains; and

(2) continues to be a member until the time of judgment, unless the failure to do so is the result of corporate action that:

(i) was done merely to eliminate derivative claims; or

(ii) has the effect of a reorganization that does not affect the plaintiff's ownership of the enterprise.

(b) Exception.--Any member who, except for the provisions of subsection (a), would be entitled to maintain the action or proceeding and who does not meet such requirements may, nevertheless in the discretion of the court, be allowed to maintain the action or proceeding on preliminary showing to the court, by application and upon such verified statements and depositions as may be required by the court, 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.

(c) Security for costs.--In any action or proceeding instituted or maintained by less than the smaller of 50 members of any class or 5% of the members of any class of the corporation, the corporation in whose right the action or proceeding is brought shall be entitled at any stage of the proceedings to require the plaintiffs to give security for the reasonable expenses, including attorney fees, that may be incurred by the corporation in connection therewith or for which it may become liable pursuant to section 5743 (relating to mandatory indemnification), but only insofar as relates to actions by or in the right of the corporation, to which security the corporation shall have recourse in such amount as the court determines upon the termination of the action or proceeding. The amount of security may from time to time be increased or decreased in the discretion of the court upon showing that the security provided has or is likely to become inadequate or excessive. The security may be denied or limited by the court if the court finds after an evidentiary hearing that undue hardship on plaintiffs and serious injustice would result.

(d) Failure to maintain ownership.--If a plaintiff loses the right to maintain a derivative action under subsection (a)(2), the court may entertain a motion to substitute the corporation as the named plaintiff.

(e) Cross reference.--See section 6146 (relating to provisions applicable to all foreign corporations).

Legislative History

(June 22, 2001, P.L.418, No.34, eff. 60 days; Nov. 21, 2016, P.L.1328, No.170, eff. 90 days; Nov. 3, 2022, P.L.1791, No.122, eff. 60 days) 2022 Amendment.Act 122 amended subsec. (a), relettered former subsec. (d) to subsec. (e) and added present subsec. (d). 2016 Amendment.Act 170 amended the section heading and subsec. (c). 2001 Amendment.Act 34 added section 5782. Cross References.Section 5782 is referred to in sections 5781, 6146 of this title.