Legal Definitions - collusive action

A collusive action occurs when two parties appear to be engaged in a legal dispute, but in reality, they are not genuine adversaries and do not have a true disagreement between them. Instead, they are cooperating to use the court system to achieve a specific outcome, such as obtaining a particular legal ruling, clarifying a point of law, or establishing a favorable precedent that could benefit them in other situations. Because the judicial system is designed to resolve actual controversies between genuinely opposing parties, courts will typically dismiss a collusive action once its true nature is discovered, as there is no real dispute for the court to resolve.

• Example 1: Testing a Property Covenant

  Imagine a property developer (Company A) owns land with an old, potentially unenforceable restrictive covenant. To determine if the covenant is still valid without waiting for a real dispute, Company A arranges a nominal sale of a small portion of the land to a subsidiary company or a friendly party (Company B). Company B then "sues" Company A, challenging the enforceability of the covenant. Both companies secretly desire the court to declare the covenant invalid, thereby increasing the value of Company A's remaining land. This would be a collusive action because Company A and Company B are not true adversaries; they are working together to get a legal ruling on the covenant's validity.

• Example 2: Seeking a Precedent for an Industry Standard

  Consider two large technology companies (Company X and Company Y) that are part of an industry facing a new, ambiguous government regulation. They want to understand how a specific clause in the regulation will be interpreted by courts, as it affects many of their shared business practices. They agree to stage a minor contract dispute between themselves, where Company X "sues" Company Y over a clause in a contract that mirrors the regulatory language. Both companies secretly hope for a specific interpretation that would benefit the entire industry. This is a collusive action because Company X and Company Y are not genuinely at odds; they are cooperating to obtain a judicial interpretation that will serve as a precedent for their industry, rather than resolving a true breach of contract.

• Example 3: Clarifying an Estate Planning Clause

  An individual (Ms. Chen) has an unusual and complex clause in her will that she wants to ensure will be legally upheld after her death. To preempt potential future challenges from other beneficiaries, she arranges with a trusted family member (Mr. Lee), who is also a beneficiary, to "challenge" that specific clause in court after her passing. Mr. Lee agrees to act as the challenger, but secretly, both Ms. Chen (through her estate's executor) and Mr. Lee want the court to affirm the clause's validity, providing a clear legal ruling for future estate administration. This would be a collusive action because Mr. Lee is not genuinely trying to invalidate the clause; he is acting as a nominal adversary to obtain a judicial confirmation of the clause's legality, which ultimately benefits the overall estate plan and avoids future, genuine disputes.