Wednesday, July 27, 2011

Does shareholder have the right to sue for injury to corporation, decline in value of stock?

"The general rule in Texas is that 'individual shareholders have no separate and independent right of action for injuries suffered by the corporation which merely result in the depreciation of the value of their stock.'" Perry v. Cohen, 285 S.W.3d 137, 144 (Tex.App.--Austin 2009, pet. denied) (quoting Wingate v. Hajdik, 795 S.W.2d 717, 719 (Tex. 1990)).[Fn4]

"[A] cause of action for injury to the property of a corporation or for impairment or destruction of its business is vested in the corporation, as distinguished from its shareholders, even though the harm may result indirectly in the loss of earnings to the shareholders." Redmon v. Griffith, 202 S.W.3d 225, 233 (Tex.App.--Tyler 2006, pet. denied).

As a result, to recover for wrongs done to the corporation, a shareholder must bring the suit derivatively in the name of the corporation to ensure that each shareholder is made whole if the corporation obtains compensation from a wrongdoer. Swank v. Cunningham, 258 S.W.3d 647, 661 (Tex.App.--Eastland 2008, pet. denied). If a claim belongs to the corporation, shareholders lack standing to seek redress in their individual capacities, because individual shareholders have no separate and independent right of action for wrongs to the corporation that merely result in depreciation in the value of their stock. Id. at 662; Redmon, 202 S.W.3d at 233.

Fn4: This general rule applies even if the corporation is wholly-owned. Lamajak, Inc. v. Frazin, 230 S.W.3d 786, 794 (Tex.App.--Dallas 2007, no pet.).

SOURCE: Amarillo Court of Appeals - NO. 07-10-0027-CV - 7/26/11

RELATED LEGAL TERMS: Shareholder derivative action, derivative actions, suit against corporate directors, executives.  

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