§ 5781 — Derivative action

Pennsylvania § 5781

• Jurisdiction: Pennsylvania
• Title 15: CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
• Part: PART II
• Ch. 57: OFFICERS, DIRECTORS AND MEMBERS
• Subch.: DERIVATIVE ACTIONS

Text

(a) General rule.--Subject to section 5782 (relating to eligible member plaintiffs and security for costs) and subsection (b), a plaintiff may maintain a derivative action to enforce a right of a nonprofit corporation only if:

(1) the plaintiff first makes a demand on the corporation or the board of directors, requesting that the corporation bring an action to enforce the right, and:

(i) (Deleted by amendment).

(i.1) if a special litigation committee is not appointed under section 5783 (relating to special litigation committee):

(A) the board determines that:

(I) an action based on some or all of the claims asserted in the demand not be brought by the corporation but that the corporation not object to an action being brought by the party that made the demand; or

(II) an action already commenced continue under the control of the plaintiff; or

(B) the board does not notify the party that made the demand within 60 days after the demand was made that the board has appointed a special litigation committee or has made a determination described under either clause (A)(I) or (II); or

(ii) if a special litigation committee is appointed under section 5783, a determination is made:

(A) under section 5783(e)(1) that the corporation not object to the action; or

(B) under section 5783(e)(5)(i) that the plaintiff continue the action;

(2) demand is excused under subsection (b);

(3) the action is maintained for the limited purpose of seeking court review under section 5783(f); or

(4) the court has allowed the action to continue under the control of the plaintiff under section 5783(f)(3)(ii).

(b) Prior demand excused.--

(1) A demand under subsection (a)(1) is excused only if the plaintiff makes a specific showing that immediate and irreparable harm to the nonprofit corporation would otherwise result.

(2) If demand is excused under paragraph (1), demand shall be made promptly after commencement of the action.

(c) Contents of demand.--A demand under this section must be in record form and give notice with reasonable specificity of:

(1) the material facts relied upon to support each of the claims made in the demand against each proposed defendant; and

(2) in the case of a derivative action commenced by a member, the basis on which the person making the demand has standing under section 5782.

(d) Additional claims.--If a derivative action is commenced after a demand has been made under this section and includes a claim that was not fairly subsumed under the demand, a new demand must be made with respect to that claim. The new demand shall not relate back to the date of the original demand for purposes of subsection (e).

(e) Statute of limitations.--The making of a demand tolls any applicable statute of limitations with respect to a claim asserted in the demand until the earlier of the date:

(1) the plaintiff making the demand is notified either:

(i) that the board of directors has decided not to bring an action and not to appoint a special litigation committee; or

(ii) of a determination under section 5783(e) after the appointment of a special litigation committee under section 5783; or

(2) the plaintiff commences an action asserting the claim.

Legislative History

(Nov. 21, 2016, P.L.1328, No.170, eff. 90 days; Nov. 3, 2022, P.L.1791, No.122, eff. 60 days; July 15, 2024, P.L.728, No.59, eff. 60 days) 2024 Amendment.Act 59 amended subsec. (a)(1). 2022 Amendment.Act 122 amended subsecs. (a)(1) intro. par. and (i), (b) and (c). 2016 Amendment.Act 170 added section 5781.