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Corporate Litigation: Derivative or Not?

On Behalf of | Jul 16, 2014 | collections, Corporate Litigation, derivative shareholder suits, proceedings supplementary

A recent Third District Court of Appeal decision clarifies when a shareholder may bring an action on his or her own behalf against a third-party or must bring the action on behalf of the corporation as a derivative shareholder suit. A derivative action is one brought by a shareholder on behalf of a corporation for damages sustained by the corporation. An example would be when an action of a third-party causes the devaluation of the stock of the corporation. Only the corporation can bring suit for that and any collection must be shared between all shareholders. Obviously, a shareholder would prefer to bring such an action in his or her own right so that any judgment would then only be in favor of the shareholder and he or she would not have to share the award with the other shareholders.

This area of law is not well established which makes the Third District Court of Appeal’s recent decision in Dinuro Investments vs. Camacho important. The decision claries when a shareholder may bring an action in his or her own name for damages suffered. The Court recognizes a two-prong test to determine whether a shareholder may individually bring suit. First, the court must determine whether the “direct harm” to the shareholder was caused as a result of an initial injury to the corporation. If so, the claim must be derivative. Second, the court must determine whether the injury suffered by the shareholder was distinct and special to that shareholder. If not, the claim is derivative. The Court, however, did create an exception where there is a separate contractual or statutory duty owed to that shareholder from the third-party. Then the shareholder may bring a direct claim.

The Dinuro case supports a recent decision in my client’s favor that was made just prior to its publication. In my case, I executed on the stock of an ex-husband’s wholly owned corporation toward satisfaction of a judgment entered in my client’s favor.  We then impleaded under proceedings supplementary the two corporations that received the transfers from the corporation in an effort to devalue the ex-husband’s business.  The two corporations moved to dismiss the claim arguing that any devaluation of the original company must be brought as a derivative suit. I argued that because the judgment debtor used the original corporation for his own personal expenses and made those transfers to purposefully devalue the corporation so his ex-wife could not collect, Florida Statutes §56.29 created a special statutory mechanism by which my client could pursue these corporations to return of fraudulent transfers which devalued the company and the court agreed. I believe the Dinuro case which sets forth an exception that a shareholder, which my client now is as owner of all the corporate stock, may bring a direct claim where there is a separate statutory duty or obligation to the individual further supports my argument and the court’s decision in my case.