How Many Similary Situated Shareholders Does it Take to Support a Derivative Suit?
Tenn. R. Civ. P. 23.06 provides that the shareholder must "fairly and adequately represent the interests of the shareholders or members similarly situated." This raises the question of what happens when there are no shareholders similarly situated to the Plaintiff...i.e., where the derivate plaintiff has a unique injury or, as is more often the case, where the plaintiff and defendants are the only shareholders in a close corporation.
This question was answered by the Tennessee Supreme Court in Hall v. Tennessee Dressed Beef Co. 957 S.W.2d 536, 540 (Tenn. 1997)
There, the Court noted that Rule 23.06 refers to "a derivative action brought by one or more shareholders" and that "Rule 23.06 does not require a specific number of similarly situated shareholders." Accordingly, assuming the other requirements of a derivate suit are met, the Court held that a derivative suit may be maintained by a single sharholder despite the fact that there are no other similary situtated individuals.
As pointed out by the Court, one of the more compelling rationales supporting this interpretation is that a contrary rule could effectively bar one shareholder of a closely held corporation from being able to assert the corporation's rights against the other shareholders.