PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

JOHN M. RIVERS, JR., 

Plaintiff-Appellant,

v.

WACHOVIA CORPORATION; WELLS  No. 10-2222 FARGO & COMPANY; G. KENNEDY

THOMPSON; DONALD K. TRUSLOW;

THOMAS J. WURTZ; ROBERT K.

STEEL; DOES 1 THROUGH 25,

Defendants-Appellees. 

Appeal from the United States District Court

for the District of South Carolina, at Charleston.

Patrick Michael Duffy, Senior District Judge.

(2:09-cv-02941-PMD)

Argued: October 26, 2011

Decided: December 22, 2011

Before WILKINSON, MOTZ, and DUNCAN,

Circuit Judges.

Affirmed by published opinion. Judge Wilkinson wrote the

opinion, in which Judge Motz and Judge Duncan joined.
COUNSEL

ARGUED: Ian Wesley Freeman, George Trenholm Walker,

PRATT-THOMAS WALKER, PA, Charleston, South Carolina, for Appellant. Robert Walker Fuller, III, ROBINSON,

BRADSHAW & HINSON, PA, Charlotte, North Carolina, for

Appellees. ON BRIEF: Daniel S. McQueeney, Jr., PRATTTHOMAS WALKER, PA, Charleston, South Carolina, for

Appellant. Louis Adams Bledsoe, III, Stephen Montgomery

Cox, Adam Karl Doerr, ROBINSON, BRADSHAW & HINSON, PA, Charlotte, North Carolina, for Appellees.

OPINION

WILKINSON, Circuit Judge:

A former shareholder in Wachovia Corporation, appellant

John M. Rivers, Jr. seeks to recover personally for the precipitous decline in value of his approximately 100,000 shares of

Wachovia stock during the recent financial crisis. The district

court, however, dismissed Rivers’s suit against Wachovia and

four of its senior executives. The court concluded that Rivers’s complaint stated a claim derivative of injury to the corporation and that he was therefore barred from bringing a

direct or individual cause of action against the defendants.

Because Rivers’s varied attempts to recast his derivative

claim as individual are unavailing, we shall affirm the judgment.

I.

On October 1, 2009, John M. Rivers, Jr. filed suit in South

Carolina state court against Wachovia Corporation (since

acquired by Wells Fargo & Company) and four of its former

officers, G. Kennedy Thompson, Robert K. Steel, Thomas J.

Wurtz, and Donald K. Truslow. Rivers’s complaint fills

2 RIVERS v. WACHOVIA CORPORATION
almost 100 pages and lists seven causes of action: fraud, negligent misrepresentation, breach of fiduciary duty, constructive fraud, breach of duties as corporate officers, gross

negligence, and violation of the South Carolina Securities Act

of 2005. 

The crux of the complaint, however, alleges that the defendants misrepresented the financial health of Wachovia and

that, as a result, Rivers retained over 100,000 Wachovia

shares until they lost nearly all value in the market downturn

of 2008. According to the complaint: "Faced with the challenging housing market, and resulting strain on the mortgage

system [the defendants] set about on a course of conduct to

falsely represent the financial position and performance of

Defendant Wachovia . . . to discourage the Plaintiff from selling his Wachovia stock." 

Rivers claims that the defendants concealed problems

growing out of Wachovia’s 2006 acquisition of Golden West

Financial Corporation, a California-based lender specializing

in adjustable-rate mortgages that enabled borrowers to make

minimum payments lower than the accrued interest on the

loan. As the housing market declined, Rivers alleges that

defendants understated Wachovia’s credit losses, misrepresented the riskiness of Wachovia’s assets, and overstated the

strength of Wachovia’s balance sheet in press releases, SEC

filings, shareholder conference calls, and other materials disseminated to shareholders. Despite the defendants’ continued

assurances, in late 2007 Wachovia’s true financial condition

began to emerge on the heels of the subprime mortgage crisis.

By the end of September 2008 the price of Wachovia’s common stock had dropped dramatically to below $1 per share

from $13.70 earlier that month and $56.65 in early 2007. 

Under such circumstances if the corporation fails or refuses

to assert a claim of injury on its own behalf, the "proper remedy . . . is a ‘derivative action,’ which is an action brought by

a shareholder in the name or right of a corporation to redress

RIVERS v. WACHOVIA CORPORATION 3
an injury sustained by, or to enforce a duty owed to, the corporation." 13 Fletcher Cyclopedia of the Law of Corporations

§§ 5939-5940 (rev. ed. 2011). Rivers, however, declined to

pursue a derivative action, under which any recovery would

inure to the benefit of the corporation. Instead, he sought a

personal recovery for the decline in Wachovia’s share price

on the theory that he had intended to sell his Wachovia stock

before the collapse of the market but was induced not to by

the defendants’ misrepresentations of Wachovia’s financial

stability and health. 

The defendants removed the action to federal court on

diversity grounds and moved to dismiss Rivers’s complaint on

the basis that "neither North Carolina law nor South Carolina

law permits direct shareholder claims for losses resulting

solely from a fall in the value of stock." The district court

granted the motion to dismiss all counts of the complaint,

finding that the complaint "boils down to the claim that

Defendants[ ] participated in a fraudulent scheme designed to

deceive Plaintiff and the investing public as to the financial

stability of Wachovia" and that "Plaintiff’s claims . . . are

derivative claims that must be dismissed." Rivers appeals, and

for purposes of this review we take the factual contentions in

his complaint as true. See Braun v. Maynard, 652 F.3d 557,

559 (4th Cir. 2011).

II.

A.

Rivers’s attempt to recover individually for the decline in

Wachovia’s share price contravenes firmly settled corporate

law governing derivative claims. Under both North Carolina

and South Carolina law, "[t]he well-established general rule

is that shareholders cannot pursue individual causes of action

against third parties for wrongs or injuries to the corporation

that result in the diminution or destruction of the value of

their stock." Barger v. McCoy Hillard & Parks, 488 S.E.2d

4 RIVERS v. WACHOVIA CORPORATION
215, 219 (N.C. 1997); see also Babb v. Rothrock, 401 S.E.2d

418, 419 (S.C. 1991) ("It is firmly established by our decisions that individual shareholders may not sue corporate

directors or officers directly for losses suffered by the corporation.").* Instead, shareholders may pursue such claims as a

derivative suit on behalf of the corporation. The Supreme

Court has described such shareholder derivative suits as a

remedy "for those situations where the management through

fraud, neglect of duty or other cause declines to take the

proper and necessary steps to assert the rights which the corporation has." Meyer v. Fleming, 327 U.S. 161, 167 (1946).

Prohibiting individual suits to recover for injuries that

result in the decline in value of a corporation’s stock is understandable, for "the gravamen of [the] complaint is an injury to

the corporation and not to the individual interest of the shareholder." Hite v. Thomas & Howard Co. of Florence, 409

S.E.2d 340, 342 (S.C. 1991); see Fletcher Cyclopedia § 5913.

An individual action "would not protect the interests of all

stockholders" who suffer a common injury from the decline

in value of the corporation’s stock. Brown v. Stewart, 557

S.E.2d 676, 685 (S.C. Ct. App. 2001). Rather, the recovery of

one shareholder in an individual suit would invariably be at

the expense of other shareholders who suffered an identical

harm.

By contrast, any recovery in a derivative suit redounds to

the benefit of the corporation. Because any recovered dam-

*Rivers alleges that the district court erred in applying North Carolina

law, rather than South Carolina law, in dismissing his claim. This allegation misstates the analysis of the district court, which did not resolve the

choice of law question, but rather held that the suit warranted dismissal

under either North Carolina or South Carolina law. As the district court

stated, "under both North Carolina and South Carolina law, it is a ‘wellestablished general rule’ that shareholders do not have standing to bring

direct claims for wrongs that diminish the value of their shares in a corporation." We agree and therefore need not resolve the choice of law question. 

RIVERS v. WACHOVIA CORPORATION 5
ages "constitute assets which belong to the corporation," "any

action therefor must be brought in the right of the corporation,

for the benefit of all persons entitled to participate in the distribution of its assets." Gary v. Matthews, 145 S.E. 702, 703

(S.C. 1928). The procedural requirements for derivative suits

further protect the corporation and its stockholders by preventing a "multiplicity of lawsuits," by limiting "who should

properly speak for the corporation" and by precluding "selfselected advocate[s] pursuing individual gain rather than the

interests of the corporation or the shareholders as a group,

[from] bringing costly and potentially meritless strike suits."

Norman v. Nash Johnson & Sons’ Farms, Inc., 537 S.E.2d

248, 253 (N.C. Ct. App. 2000) (quoting F.H. O’Neal & R.

Thompson, O’Neal’s Oppression of Minority Shareholders

§ 7:07 (2d ed. 2000)) (internal quotation marks omitted). A

derivative lawsuit is thus the vehicle for a shareholder to litigate injuries that result in the diminution in value of the corporation’s stock. 

B.

Given these principles, Rivers would appear to have no leg

to stand on. The heart of his complaint is that he did not sell

his shares in Wachovia before their decline in value due to his

reliance on the defendants’ alleged misrepresentations and

misstatements in Wachovia’s public statements from January

2007 to September 2008, including SEC filings, press

releases, and earnings calls. He claims that due to the defendants’ "concerted actions to conceal the truth and issue reassuring misrepresentations to financial markets and Plaintiff,"

he "has been damaged and caused to lose millions of dollars

in the value of stock he held in Wachovia which he otherwise

would have sold." 

The problem, of course, is that these allegations describe a

classic injury inflicted on the corporation and identify losses

common to all Wachovia shareholders during the credit crisis.

See Kagan v. Edison Bros. Stores, Inc., 907 F.2d 690, 692

6 RIVERS v. WACHOVIA CORPORATION
(7th Cir. 1990) ("[T]he nub of the problem is that the investors’ injury flows not from what happened to them . . . but

from what happened to [the company]."). As the district court

observed, the "deterioration in Wachovia’s stock price was

felt by all shareholders, and it reflected the injuries the corporation itself was suffering"; yet, under an individual action,

"any recovery would come from the pockets of the fellow

shareholders." 

Rivers’s individual suit thus runs directly afoul of the principle that "a shareholder of a corporation may not recover

individually for injury to the corporation that results in diminution of the value of the corporation’s stock." Allen ex. rel.

Allen & Brock Constr. Co v. Ferrera, 540 S.E.2d 761, 766

(N.C. Ct. App. 2000). Because Rivers’s claim is derivative of

the injury suffered by Wachovia, his individual cause of

action was properly dismissed. 

III.

Rivers insists, however, that his suit falls within two wellrecognized exceptions to the general rule against individual

suits for injuries to the corporation. A "shareholder may maintain an individual action against a third party for an injury that

directly affects the shareholder, even if the corporation also

has a cause of action arising from the same wrong," under two

circumstances: "(1) where there is a special duty, such as a

contractual duty, between the wrongdoer and the shareholder,

and (2) where the shareholder suffered an injury separate and

distinct from that suffered by other shareholders." Barger,

488 S.E.2d at 219 (quoting 12B Fletcher Cyclopedia § 5911

(perm. ed. 1993)). It is clear, however, that neither the special

duty nor the special injury exception applies to Rivers’s

claim.

A.

In Barger, the Supreme Court of North Carolina explained

the special duty exception: 

RIVERS v. WACHOVIA CORPORATION 7
The special duty may arise from contract or otherwise. To support the right to an individual lawsuit,

the duty must be one that the alleged wrongdoer

owed directly to the shareholder as an individual.

The existence of a special duty thus would be established by facts showing that defendants owed a duty

to plaintiffs that was personal to plaintiffs as shareholders and was separate and distinct from the duty

defendants owed the corporation. 

Id. at 220 (citations omitted). In his complaint, Rivers alleges

that the individual defendants "owed a fiduciary duty to [Rivers] to disclose and communicate truthful and accurate information about the financial condition and performance" of

Wachovia. But corporate directors and officers owe such a

fiduciary duty to the corporation itself. Rivers seeks to transform the nature of that duty to one owed to him individually,

but under North Carolina law the fiduciary duty runs to the

corporate entity and any breach may only be asserted by a

shareholder derivatively.

Under North Carolina law, officers and directors of a corporation owe a fiduciary duty to the corporation which does

not create an individual cause of action. See N.C. Gen. Stat.

§ 55-8-30 ("A director shall discharge his duties as a director

. . . in a manner he reasonably believes to be in the best interests of the corporation."); Id. § 55-8-42 (same with respect to

a corporate officer). As the commentary to the statute emphasizes, the prior version of the law "provided that officers and

directors stand in a fiduciary relation ‘to the corporation and

its shareholders,’" while the amended version omits mention

of a fiduciary duty to shareholders. The amendment was

intended "to avoid an interpretation that there is a duty running directly from directors to the shareholders that would

give shareholders a direct right of action on claims that should

be asserted derivatively." Commentary to N.C. Gen. Stat.

§ 55-8-30. Rivers therefore misplaces reliance on Gilbert v.

Bagley, 492 F. Supp. 714 (M.D.N.C. 1980), for authority that

8 RIVERS v. WACHOVIA CORPORATION
he may bring a direct claim for the defendants’ alleged breach

of their fiduciary duty. Among other reasons, Gilbert is inapplicable because it predated both the amendment to § 55-8-30

and the general rule against direct claims articulated in Barger.

South Carolina law is a bit different. It specifies that officers and directors of a corporation have a fiduciary duty to act

in the best interest of the corporation and its shareholders. See

S.C. Code Ann. § 33-8-300(a) ("A director shall discharge his

duties as a director . . . in a manner he reasonably believes to

be in the best interests of the corporation and its shareholders."); Id. § 33-8-420(a) (same with respect to a corporate

officer). But under South Carolina case law, a breach of this

fiduciary duty must be pursued through a derivative, and not

an individual, action. See, e.g., Brown, 557 S.E.2d at 684

("The fiduciary obligation of . . . directors is ordinarily

enforceable through a stockholder’s derivative action.")

(internal quotation marks omitted); Clearwater Trust v. Bunting, 626 S.E.2d 334, 339 (S.C. 2006) ("Appellants allege corporate malfeasance that resulted in identical harm to all

shareholders: such a breach of fiduciary duty gives rise to a

classic shareholders’ derivative suit."). 

Nonetheless, Rivers contends that several cases establish

that the defendants owed him a special duty individually.

These cases, however, discuss two categories of special duties

that do not apply here. First, the cases recognize a special

duty where the defendant’s misrepresentations to the individual plaintiff predated the shareholder-officer relationship and

induced the plaintiff to become a shareholder. See, e.g., Howell v. Fisher, 272 S.E.2d 19, 26 (N.C. Ct. App. 1980) (observing that the "claim cannot be a derivative one, on behalf of the

corporation, when the alleged negligence occurred before

[plaintiffs] were even stockholders"); Allen, 540 S.E.2d at 766

(holding that alleged wrongful acts by defendants which

induced plaintiff to become a shareholder provided a possible

basis for individual recovery). By Rivers’s own account, the

RIVERS v. WACHOVIA CORPORATION 9
defendants’ alleged misrepresentations did not induce him to

become a Wachovia shareholder, but to refrain from selling

stock he already owned. 

Second, several cases extend special protection to minority

shareholders in a closely held corporation. See, e.g., Norman,

537 S.E.2d at 260 (holding that "majority shareholders in a

close corporation owe a ‘special duty’ and obligation of good

faith to minority shareholders"); Jacobson v. Yaschik, 155

S.E.2d 601, 605 (S.C. 1967) (holding that officers and directors of a corporation owe a fiduciary duty to a minority stockholder to make a full disclosure of all relevant facts when

purchasing shares from the stockholder). Rivers was not a

minority shareholder in a closely held corporation but one

among many who held Wachovia’s publicly traded shares. 

Absent any allegation that Rivers was party to a separate

contract with the defendants which created distinct duties personal to him, or that he was individually subject to misleading

inducements outside the officer-shareholder relationship, Rivers "fails to set forth any allegations which, even taken as

true, support a special duty between [him] and defendants."

Energy Investors Fund, L.P. v. Metric Constructors, Inc., 525

S.E.2d 441, 444 (N.C. 2000). As in Energy Investors, Rivers

was only one of many to receive or rely upon alleged misrepresentations. The misrepresentations allegedly contained in

the filings and releases were available to all shareholders: a

breach of duty to one was perforce a breach of duty to all. 

B.

Under the second, special injury exception to the general

rule, the plaintiff must allege an injury "peculiar or personal"

to him. Barger, 488 S.E.2d at 220. An injury may sustain an

individual cause of action where "a legal basis exists to support plaintiffs’ allegations of an individual loss, separate and

distinct from any damage suffered by the corporation." Id.

(quoting Howell, 272 S.E.2d at 23); see Stewart v. Ficken,

10 RIVERS v. WACHOVIA CORPORATION
149 S.E. 164 (S.C. 1929). A common example of a distinct

injury is a "claim of stock dilution and a corresponding reduction in a shareholder’s voting power." Fletcher Cyclopedia

§ 5913. This "alleged reduction in [plaintiff’s] individual percentage of corporate control is separate and distinct from any

general diminution in the value of corporate stock." Hite, 409

S.E.2d at 342. 

Like the special duty exception, the special injury exception is inapplicable to Rivers’s complaint. It is clear, as we

have noted, that the decline in the corporation’s share value

did not inflict any special or distinct injury on Rivers, but

rather injured the corporation. As such, it does not provide

Rivers with an individual cause of action. See Barger, 488

S.E.2d at 220. Rivers attempts, however, to differentiate

between mismanagement which injured the corporation and

misrepresentations which injured him individually. But this is

a distinction without a difference. When the price of

Wachovia’s common stock dropped from $56.65 per share in

January 2007 to below $1 per share in September 2008, the

corporation was injured and monetary loss was common to

every Wachovia shareholder. 

Equally unavailing is Rivers’s "lost profit opportunity" theory of harm. Under this theory, Rivers meant to sell his shares

in Wachovia before the decline in share price but forwent the

opportunity to sell based on the false statements of defendants. This theory suffers multiple flaws. Most basically, the

alleged injury of a "lost profit opportunity" is merely an

opaque way of restating that Rivers was harmed by the

decline in value of Wachovia stock. As the Fifth Circuit stated

in Crocker v. FDIC, 826 F.2d 347, 350 (5th Cir. 1987), the

"lost profit opportunity" theory of harm is indistinguishable

"from the classic model of diminution in the value of corporate stock," as the "end result" is the same, with the stock of

all shareholders losing value. See also Arent v. Distribution

Scis., Inc., 975 F.2d 1370, 1373 (8th Cir. 1992). Rivers’s

claim that he should recover for the lost opportunity to sell his

RIVERS v. WACHOVIA CORPORATION 11
stock at a better price depends, as the district court noted, on

the allegation that "he suffered losses when Wachovia stock

declined along with the U.S. housing market during the credit

crisis." This effort to disguise a classic derivative claim for

the decline in stock value as a "lost profit opportunity" is thus

too clever by half. 

Moreover, courts have recognized that permitting direct

claims for a "lost profit opportunity" presents substantial

problems of proof too speculative to litigate on an individual

basis. See, e.g., Crocker, 826 F.2d at 351. "Unlike a typical

securities claim involving a precise date, number of shares,

price, and profit or loss," such claims "involve only a hypothetical transaction." Harris v. Wachovia Corp., 2011 NCBC

3 ¶ 79 (N.C. Super. Ct., Feb. 23, 2011). As a result, the theory

of liability for these claims depends crucially on the element

of shareholder intent, specifically whether the shareholder

would have sold his shares but for the defendants’ alleged

fraud. Such assertions of intent, however, would often require

courts to extract recollections from the recesses of a particular

investor’s mind or, as the Supreme Court has put it, require

the resolution of "many rather hazy issues of historical fact

the proof of which depended almost entirely on oral testimony." Blue Chip Stamps v. Manor Drug Stores, 421 U.S.

723, 743 (1975). The ascertainment of damages would prove

as difficult as the question of liability. Not only would we

have to take our best guess at when Rivers would have sold

his stock based on information that he did not receive, but

"analysis would be required with regard to what would the

stock price set by the market have been at the time of Plaintiffs’ proposed sale if accurate information had been published." Harris, 2011 NCBC 3 ¶ 79. 

Equally problematic, the theory of "lost profit opportunity"

articulates an incoherent theory of harm, as "the deceit is not

coupled with the injury." Kagan, 907 F.2d at 692. Rivers

claims he was injured by the misrepresentations of the defendants. But the defendants’ alleged misrepresentations caused

12 RIVERS v. WACHOVIA CORPORATION
the artificial inflation of the share price and not the depression

in value for which Rivers seeks to recover. In Arent, the

Eighth Circuit observed that the plaintiffs’ claim "fails as a

matter of law because any injury to plaintiffs was not caused

by [the corporation’s misrepresentations]. Plaintiffs were not

harmed because they were unable to realize the true value of

their stock—they were harmed because the true value of their

stock was zero." Arent, 975 F.2d at 1374. 

Likewise, Rivers accuses the defendants of concealing

Wachovia’s true financial condition. Ironically, therefore, the

opportunity for profit which Rivers claims he lost existed only

due to the alleged misrepresentations that artificially inflated

Wachovia’s share price. The opportunity for profit was thus

not a casualty of the alleged misrepresentation, but a creation

of it. As in Arent, "if everyone had known this adverse fact

[that Rivers alleges defendants concealed], then the stock’s

value would have reflected the adversity." Id. at 1374; see

also Crocker, 826 F.2d at 351 (same). After all, the drop in

Wachovia’s share price and concomitant collapse of the market resulted from the disclosure of material financial information, not its concealment. 

In sum, Rivers’s claim of a "lost profit opportunity" rests

on a "troublesome paradox": "on the one hand, [plaintiffs]

claim the defendants’ scheme caused their injury; yet on the

other hand, without the scheme, the [plaintiffs] could never

have realized the artificially high profit that they claim to

have unjustly lost." Id. at 352. The failure to sufficiently capitalize on the effects of an alleged fraudulent scheme is not an

injury we are prepared to credit. 

IV.

In the end, Rivers has failed to articulate principled limits

on the claims he seeks to press. Limiting individual suits to

those who intended to sell is no limit at all; virtually every

shareholder considers selling his shares at various points in

RIVERS v. WACHOVIA CORPORATION 13
time and every investor who suffers substantial monetary

losses will be tempted to recall a prior intent to sell. Rivers

claims his injury is unique but the number of people who may

step forward with a similar tale of inducement not to sell is

nigh infinite. Decisions to buy, sell, or hold shares inevitably

involve a degree of risk and uncertainty. It is all too common

to look back and wish one had invested differently. Investment presupposes risk—it is not the role of courts to reverse

the consequences of infelicitous decisions after the fact or to

allow one investor to recover losses at the expense of fellow

shareholders. To the extent a shareholder wishes to litigate

this sort of monetary loss due to the misrepresentations of corporate executives, his remedy lies within the framework of the

derivative suit on behalf of the corporation. Because Rivers

pursued a very different route, his suit was properly dismissed, and the judgment is affirmed.

AFFIRMED

14 RIVERS v. WACHOVIA CORPORATION