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Corporate Shareholder Standing

May 26, 2015

Corporate Shareholder Standing

CaseIn Re: Estate of Edward Stephen McRedmond

Issue:  Do shareholders of a corporation have standing to seek damages for alleged corporate losses or to seek an injunction?

Facts:  The case involves a long standing dispute among ten siblings with respect to a family business. After years of litigation, the parties came to an agreement to dissolve the corporation that controlled the family business and sell its assets. The Defendant Siblings in this case placed the highest bid for the assets and the sale was approved to be made to them. Before the sale could be finalized, the Defendant Siblings started their own corporation and guaranteed their right to purchase the assets to their new corporation. This new corporation starting doing business just as the original family business did years ago. One of the Plaintiff Siblings started another corporation and began to directly compete with Defendant Siblings. Defendant Siblings filed a counterclaim against Plaintiff Sibling alleging that he was intentionally interfering with their business, he had breached a fiduciary duty, and that as a result they lost their benefit of their bargain. Furthermore, they sought injunctive relief against the Plaintiff Sibling. The trial court awarded compensatory damages to the Defendant Siblings and entered a permanent injunction against the Plaintiff Sibling.

Appellate Decision:  The intermediate court reversed, holding that the Defendant Siblings lacked standing to sue or seek an injunction. Although they had individually bid on the original business, the legal documentation made clear that their new corporation was the actual purchaser and owner of the original business. The court held that the proper party to pursue “wrings done to a corporation” is “the corporation itself.”

Review Granted:  May 14, 2015.

Prediction:  Ben thinks the Supreme Court will uphold the intermediate court’s decision in reversing the trial court due to their reliance Tennessee Supreme Court case of Hadden v. City of Gatlinburg. This case stated the rule that individuals do not have standing to recover damages in their own capacity for injuries done to a corporation of which they are a part.