shareholder derivative claim

In Novedea Sys. v. Colaberry, Inc., co-founders of a business discussed terms of a buy-out, but ended up in litigation. No. 6:20-cv-00180-JDK, 2021 U.S. Dist. LEXIS 152372 (E. D. Tex. August 13, 2021). One co-founder sued on his behalf and on behalf of the company against the other co-founder without discussing the suit with the other co-founder or the board of directors. The defendant filed a motion for summary judgment, arguing that the plaintiff did not have authority to file a lawsuit for the company. The plaintiff responded that his “authority derives from his standing “as a longtime manager and corporate officer” of Novedea, or alternatively, as a shareholder bringing a derivative action.” Id.
Continue Reading Court Holds That Shareholder Derivative Suit May Proceed Against An Officer Without A Pre-Suit Demand Where The Case Involved A Closely-Held Corporation

In Benge v. Thomas, a settlor created a trust and appointed her daughter, Missi, as the trustee. No. 13-18-00619-CV, 2020 Tex. App. LEXIS 6888 (Tex. App.—Corpus Christi August 27, 2020, no pet.). The trust owned an interest in a limited partnership that contained mineral interests. Missi’s daughter, Benge, was a beneficiary of the trust. Benge sued Missi for various claims of breach of fiduciary duty arising from the operation of the limited partnership and other issues. The trial court granted summary judgment for Missi, and Benge appealed.

The court of appeals first addressed Benge’s claim that Missi breached her fiduciary duty to the trust by allowing the limited partnership’ general partner to make objectionable transactions. Benge claimed that Missi breached her fiduciary duty in her capacity as trustee because she should have prevented the general partner from making the transactions. The court disagreed:

AFT Property as general partner had the authority to make these decisions. The evidence establishes as a matter of law that the 2012 Trust as a limited partner had no decision-making rights regarding AFT Minerals’ assets. Benge’s complaints all involve alleged damages to AFT Minerals and not to Benge herself. Thus, AFT Minerals would have had to bring these claims and not Missi in her capacity as trustee or Benge as a remainder beneficiary. See Hall v. Douglas, 380 S.W.3d 860, 873 (Tex. App.—Dallas 2012, no pet.) (“[C]laims for “a diminution in value of partnership interests or a share of partnership income” may be asserted only by the partnership itself.”); see also Adam v. Harris, 564 S.W.2d 152, 156-57 (Tex. App.—Houston [14th Dist.] 1978, writ ref’d n.r.e.) (“A clear line exists between actions of a trustee and those of an officer of a corporation owned wholly or in part by the trust, even where the same person ‘wears both hats.’”).


Continue Reading Court Addresses Claims Against A Trustee Arising From The Management Of A Limited Partnership Interest

In Roels v. Valkenaar, a shareholder filed a shareholder derivative suit against former and current officers and directors of the company based on multiple claims of breach of fiduciary duty. No. 03-19-00502-CV, 2020 Tex. App. LEXIS 6684 (Tex. App.—Austin August 20, 2020, no pet. history). The defendants filed a motion to dismiss, and the trial court denied it. The defendants appealed, and the court of appeals reversed in part and affirmed in part.

The plaintiffs’ first claim dealt with certain interested-direction transactions that were loans from the company. The court dismissed these claims because the evidence showed that regarding one transaction that there was director consent to the loan and regarding the other loans that there was not sufficient evidence of damages. The court stated:

Self-dealing (i.e., an “interested transaction”) may constitute breach of an officer’s or director’s fiduciary duty to the corporation. However, we need not determine whether the shareholders met their prima facie burden as to the element of breach because we conclude that they have not met the burden as to the element of damages. To prove the damage-to-plaintiff or benefit-to defendant element of a claim for breach of fiduciary duty based on self-dealing, a plaintiff must demonstrate that the fiduciary obtained a benefit for itself either at the expense of its principal or without equally sharing the benefit with the principal. While the shareholders have alleged in conclusory fashion that the loans contained “non-market terms” and have “disproportionately benefitted” Roels and Barshop, they have not identified any specific harm to the Company or benefit to the defendants as a direct result of the loans.


Continue Reading Court Addressed A Shareholder Derivative Suit Against Officers And Directors For Self-Interested Transactions, Misuse Of Company Assets, And Dereliction Of Duties

In Katz v. Intel Pharma, LLC, a minority member of a limited liability company sued a former manager for breach of fiduciary duty in a derivative action. No. H-18-1347, 2020 U.S. Dist. LEXIS 120389 (S.D. Tex. July 9, 2020). The defendant filed a motion for summary judgment, alleging that he did not owe any fiduciary duties, and even if he did, the minority member could not raise them after the company was no longer in existence. The federal district court denied the motion.
Continue Reading Court Held That Manager Owed Limited Liability Company Fiduciary Duties And That A Derivative Action Could Still Be Pursued After The Company Dissolved

In Garcia v. Communities in Schools of Brazoria County, a director sued a nonprofit’s board for breach of fiduciary duty arising from his removal. 2019 U.S. Dist. LEXIS 97017 (S. D. Tex. June 10, 2019). The board alleged that he did not have standing to bring such a claim, and the district court agreed: