Returning Subscriber?
Not a Subscriber to Litigation Pathfinder?
Get the full text of this legal issue, including links to cited primary law, along with unlimited access 1,000’s of other legal issues…and more!
Area of Law: | Business Organizations & Contracts, Corporate & Securities |
Keywords: | Derivative claim rules; Breach of fiduciary duty, waste, misappropriation; Close corporation exception |
Jurisdiction: | Utah |
Cited Cases: | 20 P.3d 868; 134 P. 3d 1139; 970 P.2d 1273; 163 P.3d 636 |
Cited Statutes: | Utah R. Civ. P. 23A |
Date: | 09/01/2012 |
Utah follows the general rule that claims for breach of fiduciary duty, waste, misappropriation and the like belong to the corporation and are therefore derivative. A claim for dissolution and accounting, in contrast, is a direct claim. See GLFP, Ltd. v. CL Mgmt., Ltd., 2007 UT App. 131, ¶ 8, 163 P.3d 636 (citing Aurora Credit Servs., Inc. v. Liberty W. Dev. Inc., 970 P.2d 1273, 1280 (Utah 1998)). “Claims of mismanagement, breach of fiduciary duties, and appropriation or waste of corporate opportunities are claims that corporation has been injured. Accordingly, the cause of action belongs to the corporation and shareholders may sue only on its behalf.” Warner v. DMG Color, Inc., 2000 UT 102, ¶ 12, 20 P.3d 868. Accord Aurora Credit Servs. Inc. v. Liberty West Dev., Inc., 970 P.2d 1273, 1280 (Utah 1998); Richardson v. Ariz. Fuels Corp., 614 P.2d 636, 639-40 (Utah 1980) (“[t]he rule in Utah is that mismanagement of the corporation gives rise to a cause of action in the corporation, even if the mismanagement results in damages to stockholders”)).
There is an exception to the general rule, the “close corporation exception,” which gives the trial court the discretion to allow shareholders to pursue a derivative claim through a direct action without first making a demand. GLFP, 2007 UT App. 131, ¶ 17. The exception is permitted “only in very limited circumstances, and only when complying with strict pleading requirements.” […]
Subscribe to Litigation Pathfinder
To get the full-text of this Legal Memorandum ... and more!
(Month-to-month and annual subscriptions available)
Get the full text of this legal issue, including links to cited primary law, along with unlimited access 1,000’s of other legal issues…and more!