Right of action of non-shareholder against corporation?

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ZyzzBrah
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Right of action of non-shareholder against corporation?

Postby ZyzzBrah » Mon Apr 01, 2013 11:12 pm

I am trying to find an avenue for a non-shareholder to sue a corporation for breach of fiduciary duty or for fraud where that misconduct damages the non-shareholder. Basically, where/when (if ever) can a non-shareholder bring a direct or derivative suit for fraud, or are these causes of action reserved for shareholders always.

any suggestions?


ex: suppose Im an employee of corporation and someone on corporation's board commits fraud by misrepresenting the corporation's success, do I have any chance of suing the corporation when I am not a shareholder-because the fraud arguably hurts me as an employee?

NotMyRealName09
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Re: Right of action of non-shareholder against corporation?

Postby NotMyRealName09 » Tue Apr 02, 2013 6:56 pm

No.

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jessuf
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Re: Right of action of non-shareholder against corporation?

Postby jessuf » Tue Apr 02, 2013 7:42 pm

Of course a rando can sue a corporation, including for fraud, misrepresentation, etc. I'm kind of confused about your question.

ZyzzBrah
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Re: Right of action of non-shareholder against corporation?

Postby ZyzzBrah » Tue Apr 02, 2013 8:10 pm

Jessuf wrote:Of course a rando can sue a corporation, including for fraud, misrepresentation, etc. I'm kind of confused about your question.


For example, a shareholder can file a direct suit when the conduct of the board causes him some harm, and a shareholder can file a derivative suit where the conduct of the board or management causes harm to the corp, but is there any analogue for non-shareholder employees?

I know anyone can sue anyone, but is there a recognized right of action for anyone other than shareholders. (I'm pretty sure the answer is no, but didn't know if someone could think of something clever).

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Emma.
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Re: Right of action of non-shareholder against corporation?

Postby Emma. » Tue Apr 02, 2013 8:19 pm

ZyzzBrah wrote:
Jessuf wrote:Of course a rando can sue a corporation, including for fraud, misrepresentation, etc. I'm kind of confused about your question.


For example, a shareholder can file a direct suit when the conduct of the board causes him some harm, and a shareholder can file a derivative suit where the conduct of the board or management causes harm to the corp, but is there any analogue for non-shareholder employees?

I know anyone can sue anyone, but is there a recognized right of action for anyone other than shareholders. (I'm pretty sure the answer is no, but didn't know if someone could think of something clever).


I'm really confused by your question. Derivative suits aren't generic rights of action, they are for breaches of fiduciary duty. Corporate officers don't owe any fiduciary duty no non-shareholders. But depending on how you are harmed by either the corporation or a corporate officer then you may have a cause of action against the officer, the corporation, or both.

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northwood
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Re: Right of action of non-shareholder against corporation?

Postby northwood » Tue Apr 02, 2013 8:24 pm

boards owe fiduciary duties to shareholders, not to employees. a supervisor may owe a fiduciary duty to their employee, and a supervisor on the board may owe a duty to the employee, but to sue for supervisory liability the employee would have to demonstrate that the supervisor had notice of a risk of a substantial harm to the employee and disregarded the risk.

ZyzzBrah
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Re: Right of action of non-shareholder against corporation?

Postby ZyzzBrah » Tue Apr 02, 2013 8:36 pm

Emma. wrote:I'm really confused by your question. Derivative suits aren't generic rights of action, they are for breaches of fiduciary duty. Corporate officers don't owe any fiduciary duty no non-shareholders. But depending on how you are harmed by either the corporation or a corporate officer then you may have a cause of action against the officer, the corporation, or both.


sorry, used the wrong word there. I'm fairly certain the answer is no, but I was just trying to see if a non-shareholder could sue for breach of fiduciary duty, because that breach can cause them significant harm (there are several empirical studies that show how the harm to non-shareholders dwarfs the harm to shareholders).

northwood wrote:boards owe fiduciary duties to shareholders, not to employees. a supervisor may owe a fiduciary duty to their employee, and a supervisor on the board may owe a duty to the employee, but to sue for supervisory liability the employee would have to demonstrate that the supervisor had notice of a risk of a substantial harm to the employee and disregarded the risk.


yeh, I was just trying to see if anyone knew of an exception to the general rule that fiduciary duties are owed to shareholders only.

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Emma.
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Re: Right of action of non-shareholder against corporation?

Postby Emma. » Tue Apr 02, 2013 8:50 pm

ZyzzBrah wrote:
Emma. wrote:I'm really confused by your question. Derivative suits aren't generic rights of action, they are for breaches of fiduciary duty. Corporate officers don't owe any fiduciary duty no non-shareholders. But depending on how you are harmed by either the corporation or a corporate officer then you may have a cause of action against the officer, the corporation, or both.


sorry, used the wrong word there. I'm fairly certain the answer is no, but I was just trying to see if a non-shareholder could sue for breach of fiduciary duty, because that breach can cause them significant harm (there are several empirical studies that show how the harm to non-shareholders dwarfs the harm to shareholders).

northwood wrote:boards owe fiduciary duties to shareholders, not to employees. a supervisor may owe a fiduciary duty to their employee, and a supervisor on the board may owe a duty to the employee, but to sue for supervisory liability the employee would have to demonstrate that the supervisor had notice of a risk of a substantial harm to the employee and disregarded the risk.


yeh, I was just trying to see if anyone knew of an exception to the general rule that fiduciary duties are owed to shareholders only.


Nope. Someone has to be in a fiduciary relationship in order for there to be a fiduciary duty.

That doesn't mean that non-shareholders don't have a right of action against a corp or its officers, it just isn't a suit for breach of fiduciary duty.

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Detrox
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Re: Right of action of non-shareholder against corporation?

Postby Detrox » Tue Apr 02, 2013 10:34 pm

NotMyRealName09 wrote:No.


Should have been /thread.

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RELIC
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Re: Right of action of non-shareholder against corporation?

Postby RELIC » Tue Apr 02, 2013 10:56 pm

ZyzzBrah wrote:yeh, I was just trying to see if anyone knew of an exception to the general rule that fiduciary duties are owed to shareholders only.

No but there are fraud provisions (10(b)(5)) that allow suits for fraud without a fiduciary duty. But the bar for these is much higher (i.e. you need to prove scienter) and you have to have bought or sold a security to be eligible.

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thesealocust
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Re: Right of action of non-shareholder against corporation?

Postby thesealocust » Tue Apr 02, 2013 11:39 pm

Stakeholders that are not shareholders (most obviously employees) do not have rights at corporate law in the American legal system. This isn't necessarily obvious or true everywhere, but it's true here.

If the board runs your company into the ground and you lose your job as a result, you have no legal recourse under traditional corporate law theories. The shareholders, as the owners of the business, are the only ones that do.

MinEMorris
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Re: Right of action of non-shareholder against corporation?

Postby MinEMorris » Wed Apr 03, 2013 1:53 am

It actually can happen. As far as I know, though, it only happens in the case of clients, and even then, only in special circumstances. A specific example: Francis v. United Jersey Bank 87 N.J. 15, 432 A.2d 814 (1981) (former client successfully suing board member's estate for breaching her duty of care as a board member).




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