PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

____________

No. 21-2258

____________

ADAM POTTER; MOXIE HC LLC,

 Appellants

v.

COZEN & O'CONNOR;

ANNE BLUME, Esquire;

ANNE M. MADONIA, Esquire

____________

On Appeal from the United States District Court 

for the Eastern District of Pennsylvania

(District Court No. 2-20-cv-1825)

U.S. District Judge: Honorable Nitza I. Quiñones Alejandro

____________

Submitted Under Third Circuit LAR 34.1(a)

March 14, 2022

Before: JORDAN, KRAUSE, and PORTER, Circuit Judges

(Opinion Filed: August 24, 2022)
2

Clifford E. Haines

Haines & Associates

1339 Chestnut Street

The Widener Building, 5th Floor

Philadelphia, PA 19103

Attorney for Adam Potter and Moxie HC LLC

Brian P. Flaherty

Cozen & O’Connor

1650 Market Street

One Liberty Place, Suite 2800

Philadelphia, PA 19103

Attorney for Cozen & O’Connor, Anne Blume, 

Esquire, and Anne Madonia, Esquire
3

____________

OPINION

____________

KRAUSE, Circuit Judge.

A plaintiff who seeks to invoke the jurisdiction of the 

federal courts must meet the standing requirements of Article 

III of the United States Constitution. But courts have also 

attached the label of “standing doctrine” to various “equitable” 

or “prudential” limitations they have imposed on a plaintiff’s 

ability to bring a claim, raising the question whether those socalled standing doctrines are also jurisdictional. This case 

involves the third-party standing doctrine, which as applied in 

the context of derivative harm to shareholders, has come to be 

called the “shareholder standing rule.” On the basis of that 

rule, the District Court dismissed Appellants’ claim under 

Federal Rule of Civil Procedure 12(b)(1) for lack of 

jurisdiction. But the third-party standing rule is merely 

prudential, not constitutional and jurisdictional, and is 

therefore properly considered under Rule 12(b)(6), not Rule 

12(b)(1). And because there are different considerations in 

deciding a motion to dismiss under Rule 12(b)(6) that could 

produce a different outcome in this case, we will vacate and 

remand.

I. FACTUAL AND PROCEDURAL BACKGROUND1

Appellees Cozen O’Connor, Anne Blume, and Anne 

Madonia (collectively, the “Lawyers”) comprise the legal team 

1 Because we conclude the motion to dismiss should 

have been analyzed under Rule 12(b)(6), we draw the facts 
4

involved in the 2018 sale to The Institutes, LLC, of certain 

companies of which Appellants, Adam Potter and Moxie HC

LLC (collectively, the “Shareholders”), are the sole 

shareholders.

2

 JA 34a-36a, 39a. Starting in 2011, Attorney 

Blume also served on the board of directors and as the General 

Counsel for one of the LLCs, where she and the other board 

members were responsible for assisting the Shareholders in 

making various business decisions. JA 37a. Unbeknownst to 

the Shareholders at the time, however, Cozen represented The 

Institutes in a number of matters, including in delivering the 

purchase offer and negotiating the price for this very

transaction. JA 39a-41a. Even when Potter asked directly 

whether there was a conflict, Blume allegedly brushed aside 

the question and continued to provide legal advice about the 

proposed sale. JA 40a-41a. Ultimately, Potter took Blume’s 

advice to accept an offer of $20 million for the LLCs and 

executed the Asset Purchase Agreement (APA) drafted by 

Cozen attorneys.

3

 JA 40a-41a.

from the complaint and accept them as true. See Hartig Drug 

Co. v. Senju Pharm. Co., 836 F.3d 261, 264 n.1 (3d Cir. 2016).

2 At the time of sale, Potter owned 100% of the stock of 

C&E MGMT and Planning, Inc. while Moxie—an LLC of 

which Potter was the sole member—owned 100% of Claims 

Pages, LLC and CLM Group, Inc. JA 34a-36a. Potter and 

Moxie (together, “the Shareholders”) are the PlaintiffsAppellants in this case; the LLCs are not parties.

3 Potter eventually retained separate outside counsel 

who reviewed and negotiated the transaction documents on 

Shareholders’ behalf. JA 41a. By that point, however, the 

purchase price was fixed and non-negotiable. Id.
5

After the deal closed, the Shareholders allegedly

determined that they had sold the LLCs at a price substantially 

below their fair market value. Id. They further determined 

that, in a subsequent dispute under the APA about the value of 

installment payments, Cozen and Attorney Madonia had

wrongfully secured a favorable outcome for The Institutes by 

using confidential client information that Blume had learned in 

the course of her work with Potter and the LLCs, costing the 

LLCs an additional $344,951. JA 42a-44a. All told, the 

Shareholders allege that the Lawyers’ involvement in the sale 

caused them “millions of dollars in damages.” JA 44a.

Once these conflicts came to light, Potter brought suit 

against the Lawyers, claiming breach of fiduciary duty and 

professional malpractice sounding in tort and contract. JA 

44a-51a. Significantly, though, he chose to bring suit in the 

Shareholders’ names, even as he identified the harm as “the 

difference in the true value of the [LLCs] and the purchase 

price” that, under the APA, was to be paid to the LLCs 

themselves. JA 44a; see JA 58a, 63a (defining “Sellers” as the 

LLCs and specifying that payments would be made to 

“Sellers”).

Seizing on this discrepancy, the Lawyers moved to 

dismiss for failure to state a claim under Federal Rule of Civil 

Procedure 12(b)(6), arguing under the “shareholder standing 

rule” that Potter and Moxie did not have the legal right to bring 

claims of the corporate entities in their own names. JA 209, 

237a-40a. In opposition to that motion, however, the 

Shareholders characterized the Lawyers’ motion as a challenge 

to their Article III standing and, hence, a facial attack on the 

court’s subject matter jurisdiction, pursuant to Rule 12(b)(1). 

JA 571a. 
6

In a nod to both sides, the District Court ruled in the 

Lawyers’ favor, JA 19a, but adopted the Shareholders’ framing 

and dismissed their complaint under Rule 12(b)(1), instead of 

under Rule 12(b)(6), JA 23a. Subsequently, the Court denied 

the Shareholders’ motion for reconsideration or leave to 

amend, reasoning that because the Shareholders “lack[ed] 

Article III standing to prosecute their underlying claims,” they 

necessarily “lack[ed] standing to cure th[e] jurisdictional 

defect” with an amendment. JA 18a n.1. The Shareholders 

filed this timely appeal. JA 1a.

II. JURISDICTION AND STANDARD OF REVIEW

The District Court had jurisdiction under 28 U.S.C. § 

1332, and, as always, had “jurisdiction to determine its own 

jurisdiction.” United States v. Ruiz, 536 U.S. 622, 628 (2002) 

(citing United States v. Mine Workers of Am., 330 U.S. 258, 

291 (1947)). We have jurisdiction to review the District 

Court’s order of dismissal under 28 U.S.C. § 1291.

In reviewing a district court’s dismissal for lack of 

standing, we consider whether the complaint “contain[s]

sufficient factual matter that would establish standing if 

accepted as true.” In re Horizon Healthcare Servs. Inc. Data 

Breach Litig., 846 F.3d 625, 633 (3d Cir. 2017) (quotation and 

internal quotation marks omitted). Our standard of review on 

that ruling is de novo, accepting the facts alleged in the 

complaint as true and construing the complaint in the light 

most favorable to the non-moving party. Id.; Graden v. 

Conexant Sys. Inc., 496 F.3d 291, 294 n.2 (3d Cir. 2007). In 

contrast, we review a district court’s denial of leave to amend 

for abuse of discretion. In re Burlington Coat Factory Sec. 

Litig., 114 F.3d 1410, 1434 (3d Cir. 1997). 
7

III. DISCUSSION

Neither party challenges the District Court’s decision to 

analyze shareholder standing as an issue of subject matter 

jurisdiction under Rule 12(b)(1). But although a court’s 

“inquir[y] into its own jurisdiction is most frequently exercised 

in the negative—that is, by questioning whether federal 

jurisdiction exists even when all parties assume that it does,” 

Hartig Drug Co. v. Senju Pharm. Co., 836 F.3d 261, 267 (3d 

Cir. 2016), the court also has a “virtually unflagging 

obligation” to exercise the jurisdiction that it does have, even 

when the parties assume it does not, Colo. River Water 

Conservation Dist. v. United States, 424 U.S. 800, 817 (1976). 

So here, we must determine whether the shareholder standing 

rule did, in fact, deprive the District Court of Article III 

jurisdiction, even though both parties on appeal accept that 

premise.

4

 Cf., e.g., Hartig, 836 F.3d at 267 (“[R]egardless of 

the acquiescence or wishes of the parties, we must question 

whether the District Court properly treated antitrust standing 

as a jurisdictional issue under Rule 12(b)(1).”); Grp. Against 

Smog & Pollution, Inc. v. Shenango Inc., 810 F.3d 116, 122 & 

n.5 (3d Cir. 2016) (addressing sua sponte “whether the diligent 

prosecution bar is jurisdictional . . . or . . . nonjurisdictional” 

because the court must “raise and decide [even] jurisdictional 

4 Although the Lawyers, as noted, moved to dismiss in 

the District Court under Rule 12(b)(6), they have opted on 

appeal to defend the District Court’s ruling that Potter and 

Moxie’s lack of shareholder standing equates to a lack of 

Article III standing. The Shareholders, in their opening and 

reply briefs, accept the District Court’s premise but claim the 

shareholder standing rule does not apply because they suffered 

injuries separate from the LLCs. 
8

questions that the parties . . . elect not to press” (quotation 

omitted)). 

Below, we first address the nature of the shareholder 

standing rule, concluding it is non-jurisdictional and did not 

warrant dismissal under Federal Rule of Civil Procedure 

12(b)(1), before discussing the implications of this holding for 

remand.

A. The Shareholder Standing Rule is Prudential 

and Non-Jurisdictional.

The District Court reasoned that because all of the harm

the Shareholders attributed to the Lawyers’ alleged misconduct 

was inflicted directly on the LLCs and affected the 

Shareholders only to the extent of their derivative ownership 

interests, “the only injury-in-fact alleged . . . is an injury 

suffered by the [LLCs] themselves,” so the Shareholders 

lacked Article III standing. JA 25a–26a. The Court had in 

mind the third-party standing doctrine, which requires that “the 

plaintiff generally must assert his own legal rights and 

interests, and cannot rest his claim to relief on the legal rights 

or interests of third parties.” Franchise Tax Bd. of Cal. v. Alcan 

Aluminium Ltd., 493 U.S. 331, 336 (1990). In the context of 

harm to a corporation, this doctrine has given rise to the “socalled shareholder standing rule,” which is “a longstanding 

equitable restriction that generally prohibits shareholders from 

initiating actions to enforce the rights of the corporation unless 

the corporation’s management has refused to pursue the same 

action for reasons other than good-faith business judgment.” 

Id. But in equating shareholder standing with Article III 

standing and dismissing under Rule 12(b)(1), the Court treated 

the shareholder standing rule as constitutional and 

jurisdictional, and not merely as prudential. To understand 
9

why this was error we consider (1) the distinction between 

constitutional and prudential standing for federal jurisdiction; 

and (2) whether the third-party standing doctrine is 

jurisdictional.

1. Constitutional v. Prudential Standing

The distinction between the requirements of 

constitutional and prudential standing is significant. As the 

Supreme Court has explained, standing “consist[s] of two 

related components: the constitutional requirements of Article 

III and nonconstitutional prudential considerations.” Id. at

335; see also Miller v. Nissan Motor Acceptance Corp., 362 

F.3d 209, 221 (3d Cir. 2004) (“[T]he question of standing is 

whether the litigant is entitled to have the court decide the 

merits of the dispute or of particular issues,” and answering 

that question “subsumes a blend of constitutional requirements 

and prudential considerations.” (quotation omitted)). To 

invoke the jurisdiction of a federal court, a plaintiff must meet 

the “irreducible constitutional minimum” of Article III 

standing by establishing three elements: that she has suffered 

an “injury in fact” which is “concrete and particularized” and 

“actual or imminent”; that the injury is “fairly traceable to the 

challenged action of the defendant”; and that it is likely “that 

the injury will be redressed by a favorable decision.” Lujan v. 

Defs. of Wildlife, 504 U.S. 555, 560–61 (1992) (alterations and 

quotations omitted). 

But prudential standing requirements are not derived 

from Article III, Lexmark Int’l, Inc. v. Static Control 

Components, Inc., 572 U.S. 118, 125–26 (2014), and rather are 

“a set of judge-made rules forming an integral part of judicial 

self-government,” Joint Stock Soc’y v. UDV N. Am., Inc., 266 

F.3d 164, 179 (3d Cir. 2001) (internal quotation marks 
10

omitted) (quoting Gen. Instrument Corp. of Del. v. Nu-Tek 

Elecs. & Mfg., Inc., 197 F.3d 83, 87 (3d Cir. 1999)). These 

judge-made doctrines are meant to help the courts “avoid 

deciding questions of broad social import where no individual 

rights would be vindicated and to limit access to the federal 

courts to those best suited to assert a particular claim.” 

Freeman v. Corzine, 629 F.3d 146, 154 (3d Cir. 2010) (quoting 

Joint Stock Soc’y, 629 F.3d at 179). 

Because “[b]randing a rule as going to a court’s subjectmatter jurisdiction alters the normal operation of our 

adversarial system,” Grp. Against Smog & Pollution, 810 F.3d 

at 122 (alteration in original) (quoting Henderson ex rel. 

Henderson v. Shinseki, 562 U.S. 428, 434 (2011)), a motion to 

dismiss for lack of subject jurisdiction pursuant to Rule 

12(b)(1) and a motion to dismiss for failure to state a claim 

pursuant to Rule 12(b)(6) come with myriad procedural 

differences. Those differences include that objections to 

subject matter jurisdiction can be raised at any stage of the 

proceedings; that a court can and must raise jurisdictional 

issues sua sponte; that a court can consider evidence beyond 

the pleadings when considering a jurisdictional challenge; and 

that the two rules invert the burden of persuasion, i.e., the 

defendant bringing a Rule 12(b)(6) motion must show that the 

plaintiff has not stated a claim, but if it brings a Rule 12(b)(1) 

motion, it is the plaintiff’s responsibility to show that the court 

has subject matter jurisdiction. Id. at 122 n.6 (citing 

Henderson, 562 U.S. at 434–35; Gotha v. United States, 115 

F.3d 176, 179 (3d Cir. 1997)); Hartig, 836 F.3d at 272 n.14 

(quoting Davis v. Wells Fargo, 824 F.3d 333, 348–49 (3d Cir. 

2016)). 
11

2. The Third-Party Standing Doctrine

The distinction between constitutional and prudential 

standing can also be elusive, and the Courts of Appeals have 

not always spoken clearly about whether the third-party 

standing doctrine (including the shareholder standing rule) 

implicates Article III standing, and hence, the court’s

jurisdiction. Compare Korte v. Sebelius, 735 F.3d 654, 668

(7th Cir. 2013) (“Like other rules of third-party standing . . . 

the shareholder-standing rule is a prudential limitation and 

does not affect the court’s authority to hear the case [because] 

[p]rudential-standing doctrine[s] [are] not jurisdictional in the 

sense that Article III standing is.” (quotation omitted)),

Wilderness Soc’y v. Kane County, 632 F.3d 1162, 1168 n.1 

(10th Cir. 2011) (“[P]rudential standing is not a jurisdictional 

limitation and may be waived . . . .”), and Ensley v. Cody Res., 

Inc., 171 F.3d 315, 320 (5th Cir. 1999) (holding that 

shareholder standing rule does not implicate the court’s 

jurisdiction and thus objections based on it could be waived),

with Fair Elections Ohio v. Husted, 770 F.3d 456, 461 n.2 (6th 

Cir. 2014) (noting that “the limit on third-party standing” can 

be raised by the court sua sponte as a matter of its own 

jurisdiction), and Hillside Metro Assocs., LLC v. JPMorgan 

Chase Bank, Nat. Ass’n, 747 F.3d 44, 49–50 & n.5 (2d Cir. 

2014) (noting that the application of prudential standing 

doctrines implicated the court’s subject matter jurisdiction).

We have not yet addressed this issue directly, although

we have noted the divergence of views. See Lewis v. 

Alexander, 685 F.3d 325, 340 n.14 (3d Cir. 2012). We hold 

today that the shareholder standing rule is non-jurisdictional, 

implicating only a plaintiff’s power to bring claims, not the 

Court’s power to hear them. We reach this conclusion based 

on Supreme Court precedent, our precedent in other contexts, 
12

and the nature of the derivative injury to shareholders, each of 

which we discuss below.

Supreme Court Precedent. While the Supreme Court 

has not yet squarely addressed this question, we find its 

statements regarding the distinctions between Article III

standing and prudential standing instructional. In Franchise 

Tax Board of California v. Alcan Aluminium Ltd., the Court 

noted that separate from Article III standing requirements are 

the various “prudential requirements of the standing doctrine,” 

including the third-party standing doctrine and its related 

application, the “so-called shareholder standing rule.” 493 

U.S. at 336. It described the shareholder standing rule not as a 

jurisdictional limitation, but as an “equitable restriction,” and 

it reasoned that regardless of whether the shareholder 

respondents in that case could meet the requirements of the 

shareholder standing rule, they nonetheless “ha[d] Article III 

standing to challenge the taxes that their wholly owned 

subsidiaries are required to pay” because their ownership 

interest meant the subsidiaries’ financial injuries created 

“actual financial injur[ies]” to the shareholders. Id. But cf.

United States v. Sineneng-Smith, 140 S. Ct. 1575, 1586–87 

(2020) (Thomas, J., concurring) (acknowledging that “the 

modern Court has characterized the [third-party standing] rule 

as a prudential rather than jurisdictional matter,” and arguing 

that is inconsistent with “a historical understanding of Article 

III”).

On other occasions, too, the Court has held that, while 

defects in Article III jurisdiction can never be waived, even 

when parties fail to raise them, the same is not true of issues 

related to the third-party standing doctrine. Compare Va. 

House of Delegates v. Bethune-Hill, 139 S. Ct. 1945, 1951 

(2019) (noting that the jurisdictional requirements of Article 
13

III standing “cannot be waived or forfeited”), with Craig v. 

Boren, 429 U.S. 190, 193–94 (1976) (concluding that 

arguments regarding third-party standing could be waived, 

even though, by contrast, similar concessions “would not be 

controlling upon the reach of this Court’s constitutional 

authority to exercise jurisdiction under Art[icle] III”). Unlike 

its approach to federal jurisdiction, the Court “ha[s] not treated 

th[e] rule [against third-party standing] as absolute” and has 

carved out certain exceptions. Kowalski v. Tesner, 543 U.S. 

125, 129 (2004). And while the Supreme Court has not yet 

clarified the third-party standing doctrine’s “proper place in the 

standing firmament,” it has done so for other standing 

doctrines labeled “prudential” and concluded, e.g., in the 

context of statutory standing, that the phrase “prudential 

standing” is a “misnomer” and “misleading” because the 

doctrine relates not to the court’s jurisdiction, but to whether 

the particular plaintiff can state a cause of action. See Lexmark, 

572 U.S. at 127 & n.3, 128 n.4; Shalom Pentecostal Church v. 

Acting Sec’y U.S. Dept. of Homeland Sec., 783 F.3d 156, 163–

64 & n.7 (3d Cir. 2015). 

In sum, while the Court has described third-party 

standing as an “alternative threshold question whether 

[plaintiffs] have standing to raise the rights of others,” it views 

this question as “prudential” and distinct from “the 

constitutional minimum of standing, which flows from Article 

III’s case-or-controversy requirement.” Kowalski, 543 U.S. at 

129–30.

Our Precedent. Concluding that the third-party 

standing doctrine is not jurisdictional is also consistent with 

our treatment of a similar question regarding antitrust standing. 

See Hartig, 836 F.3d at 269. Antitrust standing, like 

shareholder standing, is not an Article III standing doctrine, but 
14

rather one that is variously characterized as prudential or a 

matter of “statutory standing.”5 Id. at 270; see also Ethypharm

S.A. Fr. v. Abbott Lab’ys, 707 F.3d 223, 232 n.17 (3d Cir. 

2013). Antitrust standing “focus[es] on the nature of the 

plaintiff’s alleged injury [and] ask[s] whether it is of the type 

that the antitrust statute was intended to forestall.” Hartig, 836 

F.3d at 269 (second alteration in Hartig) (quoting Barton & 

Pittinos, Inc. v. SmithKline Beecham Corp., 118 F.3d 178, 181 

(3d Cir. 1997)). If it is not, the plaintiff has “no standing to sue 

under the antitrust laws.” Id. (quoting Barton & Pittinos, 118 

F.3d at 181). In Hartig, we held that antitrust standing, in 

contrast to Article III standing, does not “implicat[e] a court’s 

subject matter jurisdiction” but rather “affect[s] only the 

plaintiff’s ability to succeed on the merits,” and accordingly a 

defect in antitrust standing does not put “a dismissal under 

Rule 12(b)(1) . . . legitimately in play.” Id. at 269, 273. Our 

holding today is a natural extension of this precedent: Because 

the shareholder standing rule, like other third-party standing 

5 Whereas “[c]onstitutional and prudential standing are 

about, respectively, the constitutional power of a federal court 

to resolve a dispute and the wisdom of so doing,” “[s]tatutory 

standing is simply statutory interpretation”; it only asks 

whether a plaintiff has a cause of action under the relevant 

statute. Graden v. Conexant Sys. Inc., 496 F.3d 291, 295 (3d 

Cir. 2007); see also Lexmark Int’l, Inc. v. Static Control 

Components, Inc., 572 U.S. 118, 128 & n.6. We have 

concluded that, for the purposes of deciding whether antitrust 

standing is jurisdictional and whether it must be considered 

under Rule 12(b)(6), the outcome is the same whether it is 

considered a prudential or statutory standing doctrine. Hartig, 

836 F.3d at 270; Ethypharm S.A. Fr. v. Abbott Lab’ys, 707 F.3d 

223, 232 n.17 (3d Cir. 2013).
15

doctrines, is not a matter of Article III standing, it presents only 

merits, rather than jurisdictional concerns.

The Nature of Derivative Shareholder Harm. The very 

nature of the injury to shareholders in the derivative context 

confirms that, even when they are barred from suit under the 

shareholder standing rule as a prudential matter, those 

shareholders have constitutional standing, bringing them 

within the ambit of federal court jurisdiction. The facts of this 

case are illustrative. The disadvantageous terms of the APA, 

the below-market purchase price, and the disputed installment 

payments resulting from the Lawyers’ alleged conflicted 

representation inflicted a direct financial injury on the LLCs, 

but they also inflicted an indirect injury on the LLCs’ 

shareholders: the diminution of value in their ownership 

interests. And that injury meets all the requirements of Article 

III standing: the loss of financial value in their investments 

constitutes an injury-in-fact in that it is “actual,” “concrete[,]

and particularized,” Lujan, 504 U.S. at 560 (quotations

omitted), that injury was allegedly caused by the conflicted 

Lawyers’ involvement in their sale, and that injury, if proven 

at trial, can be redressed by the court through a damages award. 

The absence of prudential “standing” under the shareholder 

standing rule thus does not alter the Shareholders’ 

constitutional standing or the Article III jurisdiction that 

attends it.

In sum, the shareholder standing rule is a prudential 

rule, not a constitutional or jurisdictional one, and, just as in 

Hartig, because the Shareholders “had Article III standing 

sufficient to give the District Court subject matter jurisdiction,

. . . a dismissal under Rule 12(b)(1) was not legitimately in 

play.” Hartig, 836 F.3d at 273. The District Court therefore 

should have treated the Lawyers’ motion to dismiss for lack of 
16

shareholder standing as a motion under Rule 12(b)(6), instead 

of 12(b)(1). We turn now to the consequence of its failure to 

do so. 

B. Scope of remand

Though we conclude the District Court erred by 

dismissing on jurisdictional grounds under Rule 12(b)(1), “we 

may affirm on any basis supported by the record,” Hartig, 836 

F.3d at 273 (quoting Davis, 824 F.3d at 350), and could 

consider doing so here on Rule 12(b)(6) grounds, especially as

the District Court indicated that it was “appl[ying] the same 

standard that it [would have] for Rule 12(b)(6) motions,” that 

is, “accept[ing] the factual allegations of the complaint to be 

true and consider[ing] them in the light most favorable to the 

plaintiffs.” JA 23a. 

On inspection, however, it appears that the District 

Court’s analysis of the Shareholders’ complaint under Rule 

12(b)(1) differed in certain respects from the analysis required 

under Rule 12(b)(6). For example, by applying Rule 12(b)(1) 

rather than Rule 12(b)(6), it left the burden of persuasion to 

establish subject matter jurisdiction with the Shareholders, as 

“the party asserting its existence.” Id. In addition, because it 

incorrectly assumed the shareholder standing rule presented a 

jurisdictional issue, it considered the Appellants’ status as 

shareholders to be dispositive given the terms of the APA, and 

thus may not have grappled with the specific allegations in the 

complaint that Potter argues establish a personal injury to him, 

based on an alleged independent attorney-client relationship 

and its attendant breach of duties that would not be subject to 

the shareholder standing rule. See JA 25a-27a. He alleges, for 

example, that the Lawyers, “in addition to serving the [LLCs], 

provided legal advice and counsel to Potter in his individual 
17

capacity” and learned confidential information in the course of 

that representation that they later misused, JA 38a; see also JA 

38a–39a, 43a–46a, and it is a well-established exception to the 

shareholder standing rule that “a shareholder with a direct, 

personal interest in a cause of action [may] bring suit even if 

the corporation’s rights are also implicated.” Franchise Tax 

Bd., 493 U.S. at 336. Whether the allegations of the complaint

are sufficient to meet this exception is a matter appropriate for 

the District Court to consider in the first instance. 

Remand is also appropriate so that the District Court can

consider whether the Shareholders should be permitted to 

amend their complaint. After the dismissal of their complaint 

under Rule 12(b)(1) for lack of standing, the Shareholders 

submitted a motion for reconsideration or, in the alternative, to 

amend. JA 17a-18a n.1. The District Court denied the motion 

for reconsideration on the merits, id., but did not do so for the 

motion to amend. Instead, it reasoned that because it had 

already held that the Shareholders “lack Article III standing to 

prosecute their underlying claims . . . they also lack standing to 

cure th[at] jurisdictional defect” with an amendment. JA 18a 

n.1.

Of course, “[u]ltimately, a motion to amend is 

committed to the ‘sound discretion of the district court.’” In re 

Allergan Erisa Litig., 975 F.3d 348, 356 n.13 (3d Cir. 2020) 

(quoting Cureton v. Nat’l Collegiate Athletic Ass’n, 252 F.3d 

267, 272 (3d Cir. 2001)). But when a court wrongly concludes 

that it does not have the power to entertain amendments at all 

and therefore denies the motion without considering its merits, 

that “is not an exercise of discretion; it is merely abuse of that 

discretion.” Foman v. Davis, 371 U.S. 178, 182 (1962). And, 

in that circumstance, the order denying leave to amend must be 

vacated and the motion’s merits considered on remand. See 
18

Newark Branch, NAACP v. Town of Harrison, 907 F.2d 1408, 

1417 (3d Cir. 1990). 

In short, because neither the question of whether the 

Shareholders’ allegations successfully state a claim under the 

appropriate Rule 12(b)(6) framework nor whether amendment 

should be permitted has yet been passed upon by the District 

Court, we will remand for that Court to address these issues 

in the first instance. 

* * *

For the foregoing reasons, we will vacate the District 

Court’s order of dismissal under Rule 12(b)(1) and its order 

denying leave to amend, and remand for further proceedings 

consistent with this opinion.