Federal Court Decision Highlights Uncertainty over
Mutual Fund Derivative Litigation Under
Massachusetts Law

Abstract

This article explains recent developments in a common type of shareholder lawsuit, known as a “derivative” claim, focusing in particular on recent developments in Massachusetts law governing such claims. Massachusetts has adopted a rather unique mechanism for dealing with derivative claims, with broad implications for the mutual fund industry, as many U.S. mutual funds are organized as Massachusetts business trusts, and shareholder derivative suits are governed by state law. The article discusses how these developments and related, unanswered questions about the changes to Massachusetts law will affect the responses of mutual fund directors and their attorneys in responding to derivative claims initiated by the shareholders of their funds.