IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 16-60417

Summary Calendar

SCARLETT DALTON, Individually, and as Executrix of the Estate of Larry 

Brooks, Deceased, 

 Plaintiff - Appellant

v.

RICHARD HUGH MCLARTY, 

 Defendant - Appellee

Appeal from the United States District Court

for the Northern District of Mississippi

USDC No. 3:15-CV-134

Before KING, DENNIS, and COSTA, Circuit Judges.

PER CURIAM:*

Scarlett Dalton appeals the district court’s dismissal of her suit against 

Richard McLarty for lack of standing. Dalton is the Executrix of the Estate of 

Larry Brooks. Brooks owned approximately eleven percent of Equity Capital 

Management LLC, a Mississippi limited liability company. Equity was 

established as a vehicle for distributing payouts from a promissory note 

 

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not 

be published and is not precedent except under the limited circumstances set forth in 5TH 

CIR. R. 47.5.4.

United States Court of Appeals

Fifth Circuit

FILED

December 2, 2016

Lyle W. Cayce

Clerk

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executed by Albany Industries, Inc., a furniture manufacturer based in 

Mississippi. McLarty is both the Chief Executive Officer of Albany and the 

former managing member of Equity. At its founding, Equity was managed by 

McLarty and was comprised of nine members: McLarty, three of his family 

members, four Albany employees, and Brooks (succeeded in interest by 

Dalton). Albany began to fall behind on its note to Equity in 2012. McLarty, 

as Chief Executive Officer of Albany, failed to increase the note’s interest rate 

as required under its terms. In response to Dalton’s criticism of these actions, 

McLarty called a special meeting of Equity’s board, which ratified McLarty’s 

actions relating to the promissory note. In 2015, Albany ceased making 

payments to Equity. 

Dalton commenced a direct action against McLarty for a breach of his 

fiduciary duties to Equity. Dalton argued that McLarty’s actions constituted 

a clear conflict of interest between his responsibilities as Chief Executive 

Officer of Albany and his duties as manager of Equity. McLarty averred that 

he had been acting in Equity’s best interests because attempted enforcement 

of the promissory note would have further threatened Equity’s future receipt 

of payments from Albany. During the course of litigation, the district court, 

sua sponte, raised the issue of whether Dalton had standing under Mississippi 

law, to pursue her claim directly against McLarty, as opposed to derivatively 

on behalf of Equity. 

Under Mississippi law, a member of a LLC suing for injuries sustained 

by the LLC only possesses derivative rights and lacks standing to proceed on 

their own behalf. Mathis v. ERA Franchise Sys., Inc., 25 So. 3d 298, 301 (Miss. 

2009). However, because Equity is a closely held entity, an exception known 

as the Derouen doctrine permits a direct action by a member as long as it does 

not “(i) unfairly expose the corporation or the defendants to a multiplicity of 

actions, (ii) materially prejudice the interests of the creditors of the 

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corporation, or (iii) interfere with a fair distribution of the recovery among all 

interested parties.” Derouen v. Murray, 604 So. 2d 1086, 1091 n. 2 (Miss. 1992) 

(quoting American Law Institute, Principles of Corporate Governance: Analysis 

and Recommendations § 7.01(d) (1992)) (internal quotations omitted). After 

briefing by the parties, the district court determined that because not all 

members of Equity were parties to the lawsuit, it could expose McLarty to 

multiple suits and result in inequitable distribution of recovery. The district 

court thus held that the Derouen exceptions did not apply and dismissed,

without prejudice, Dalton’s suit for lack of standing. 

A careful review of the record in this case, a full consideration of the 

parties’ briefs on appeal, and a thorough analysis of the district court’s ruling 

lead us to conclude that the district court’s judgment was correct. The district 

court properly determined that Dalton lacked standing under Mississippi law 

to pursue her direct claim against McLarty. Therefore, we AFFIRM the 

district court’s decision, essentially for the reasons articulated in its

memorandum opinion and order.

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