Corporate Governance

Karten v. Woltin: Individual Harms Required By Shareholder To Bring A Direct Action

By Matthew Ullrich

In Karten v. Woltin, 23 So.3d 839 (Fla. Dist. Ct. App. 2009), the parties were shareholders in 201 East Atlantic, Inc., which controlled a restaurant called Louie Louie Too.  The appellant owned a 25% stake in the company while the appellees owned 50% and 25% respectively.  In the Spring of 2006, the appellant brought a suit against the other two shareholders for opening a competing restaurant and diverting funds from 201 East Atlantic, Inc., solely for the use of the new competing restaurant.  The appellant also alleged that he was prevented from entering Louie Louie Too, that the appellees voted at a shareholder meeting to deprive him of profits, and that the appellees decided to pay Woltin an extravagant salary. 

The trial court judge granted summary judgment for the appellees stating that the appellant could not bring a direct action suit because he failed to allege injuries apart from those suffered by the other shareholders.  The only issue up on appeal was whether the appellant could bring a direct action for breach of fiduciary duty or whether the claim was derivative.  

Shareholders may bring a direct suit only in their own right to redress an injury sustained directly by them individually.  Based upon this rule, the Florida Appellate Court stated that none of the appellant's alleged injuries established the individualized harm necessary to bring a direct action.  Furthermore, the court held that all allegations brought by the appellant affected all of the shareholders equally.  Thus, the Florida Appellate Court affirmed the trial court's ruling that in order to pursue the appellant's claim he must bring a derivative action.     

The primary materials for this post are available on the DU Corporate Governance website.

Full post as published by The Race to the Bottom on March 05, 2010 (boomark / email).