Case Name: Mark TIMKO, Appellant, v. Onofrio TRIARSI, et al., Appellees
Court: Florida District Court of Appeal
Jurisdiction: Florida
Decision Date: 2005-02-11
Citations: 898 So. 2d 89
Docket Number: No. 5D04-986
Parties: Mark TIMKO, Appellant, v. Onofrio TRIARSI, et al., Appellees.
Judges: PLEUS, J., concurs.
Reporter: Southern Reporter, Second Series
Volume: 898
Pages: 89–96

Head Matter:
Mark TIMKO, Appellant, v. Onofrio TRIARSI, et al., Appellees.
No. 5D04-986.
District Court of Appeal of Florida, Fifth District.
Feb. 11, 2005.
Rehearing Denied April 15, 2005.
John F. Mariani and Christopher Kam-merer of Gunster, Yoakley Stewart, P.A., West Palm Beach, for Appellant.
Michael V. Elsberry and W. Drew Sor-rell of Lowndes, Drosdick, Doster, Kantor Reed, P.A., Orlando, for Appellees.

Opinion:
TORPY, J.
The question presented in this shareholder derivative action is whether a plaintiff/shareholder, to have standing to prosecute such an action, is required to have continuous ownership of his or her shares throughout the pendency of the action. Our resolution of this issue requires that we construe Florida's "contemporaneous ownership rule," embodied in section 607.07401, Florida Statutes (2002). We conclude that continuous ownership is required. Therefore, Appellant lost standing to prosecute this action when he was divested of his ownership interest in his shares.
When Appellant commenced the instant shareholder derivative action, he was a shareholder of the closely-held corporation that is the subject of this dispute. However, as a result of another legal proceeding, Appellant's ownership interest in his shares was terminated while the instant action was still pending. Based thereon, the trial court determined that Appellant lacked standing to proceed, and granted Appellees' Motion to Dismiss. In affirming the trial court, we begin our analysis by briefly discussing the history of derivative proceedings.
Shareholder derivative suits were originally created by common law as a means to enable shareholders to police "faithless directors and managers." Larsen v. Island Developers, Ltd., 769 So.2d 1071, 1072 (Fla. 3d DCA 2000) (quoting Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 548, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949)). In such suits, shareholders are permitted to redress rights of action that belong to corporations that have been injured by the acts of the corporations' officers and directors. Provence v. Palm Beach Taverns, Inc., 676 So.2d 1022, 1024 (Fla. 4th DCA 1996). Historically, this right of action spawned abusive, predatory practices, wherein persons acquired shares of stock for the sole purpose of instituting suits. To prevent such "predatory strike suits," Florida, like most jurisdictions, has, by statute, interposed a restriction on would-be plaintiffs known as the "contemporaneous stock ownership rule," which "expressly provides when a shareholder has standing to bring a derivative action." Kaplus v. First Continental Corp., 711 So.2d 108, 110 (Fla. 3d DCA 1998) (Emphasis added). "The purpose of this standing requirement is to ensure that derivative actions are brought only by those individuals who have a legitimate stake in the corporation so that its interests are adequately represented." Id. (citing South End Improvement Group, Inc. v. Mulliken, 602 So.2d 1327, 1330 (Fla. 4th DCA 1992)) (Emphasis added).
Ironically, Appellant relies upon Florida's "contemporaneous stock.ownership rule," which was intended to impose additional restrictions on a shareholder's common law right to maintain a derivative suit, to argue that he is not required to have any present stake in the corporation to continue the prosecution of this action. Thus, our analysis of this argument requires that we examine the language of section 607.07401(1), which provides in pertinent part:
607.07401 Shareholders' derivative actions.—
(1) A person may not commence a proceeding in the right of a . corporation unless the person was a shareholder of the corporation when the transaction complained of occurred....
(Emphasis added). Based on this language, Appellant argues that, because the statute does not expressly require present share ownership, one whose shares are disposed of during the pendency of the suit may nevertheless continue to prosecute a 'shareholder' derivative suit. Indeed, Appellant also acknowledges and advocates that, under his interpretation of the statute, share ownership by the plaintiff is not even essential at the outset.of the litigation. We think this construction ignores the language of the statute and does violence to the legislative intent underlying the statute.
Because section 607.07401 does not, by its express terms, purport to create a right of action, we interpret it to recognize the pre-existence of this common law right. By use of the phrase "may not" and the word "unless" the legislature has simply manifested its intent to place additional limits upon this preexisting right to ensure that a plaintiffs stake in the lawsuit is "legitimate," meaning an ownership interest that is not acquired for predatory purposes. The requirement of some continuous stake in the' corporation, however, clearly required at common law, is not vitiated by the statute. See Fox v. Prof'l Wrecker Operators of Florida, Inc., 801 So.2d 175 (Fla. 5th DCA 2001) (recognizing that common law right to bring derivative claim against not-for-profit corporation not abrogated by 1993 statutory amendment deleting reference to derivative actions in not-for-profit statute). To hold otherwise would undermine the very purpose for which the statute was enacted by permitting the anomalous result that a plaintiff with absolutely no "dog in the hunt" is permitted to pursue a right of action that belongs solely to the corporation. Such a result clearly thwarts the. statutory prophylactic designed to ensure "adequate representation" of the corporation by derivative plaintiffs. Nothing in the language of the statute suggests that the legislature intended to so drastically expand this historic right of action in the face of a clear legislative trend in this and other jurisdictions to do just the opposite.
In conclusion, we hold that a' plaintiff in a derivative suit, in addition .to meeting the requirements of the statute, must meet the common law requirement of continuous ownership throughout the pendency of the suit. In holding as we have today, we align ourselves with the overwhelming majority of courts in other jurisdictions that have confronted this issue. See Schilling v. Belcher, 582 F.2d 995 (5th Cir.1978) (construing Federal Rule 28.1 and precursor to section 607.07401; sale of stock during pendency of appeal from judgment in derivative suit defeats standing to continue); Lewis v. Ward, 852 A.2d 896 (Del.2004) (under Delaware statute, similar to Florida's, loss of ownership of stock through merger during pendency of suit divests plaintiff of standing); Lewis v. Turner Broad. Sys., Inc., 232 Ga.App. 831, 503 S.E.2d 81, 84 (1998) (after loss of share ownership through merger, plaintiffs lost standing to maintain derivative action); A-Plus Janitorial & Carpet Cleaning v. Employers' Workers' Compensation Ass'n, 936 P.2d 916, 924 (Okla.1997), and cases cited therein (under Oklahoma statute, similar to Florida's, continuous ownership required to maintain derivative claim); Christopher v. Liberty Oil & Gas Corp., 665 So.2d 410, 411 (La.Ct.App.1995) (former shareholders of corporation lacked standing under similar statutory scheme); U.S. Fid. & Guar. Co. v. Griffin, 541 N.E.2d 553, 554-55 (Ind.Ct.App.1989) (continuous ownership required to have standing); Weil v. Northwest Indus., Inc., 168 Ill.App.3d 1, 118 Ill.Dec. 717, 522 N.E.2d 172, 174, n. 1 (1988) (share ownership by plaintiff must be maintained during pen-dency of suit); Yanow v. Teal Indus., Inc., 178 Conn. 262, 422 A.2d 311, 323 (1979) (continuous ownership from time acts occur until judgment required to have standing to maintain derivative suit).
AFFIRMED.
PLEUS, J., concurs.
MONACO, J., dissents with opinion.
. Appellant initiated another proceeding to dissolve the corporation pursuant to section 607.1430, Florida Statutes (1999). As a result, Appellee, Onofrio Triarsi, exercised his right to purchase all of Appellant's shares pursuant to section 607.1436, Florida Statutes.
. In granting the motion to dismiss, the trial judge considered evidence extrinsic to the complaint. Ordinarily, this would not be proper. Here, however, at oral argument, Appellant's counsel, Mr. Mariani, expressly waived this argument and suggested that this court treat the lower court's order as a summary judgment. We appreciate and commend counsel's willingness to forego this procedural objection in the interest of both judicial economy and reducing the costs to the litigants.
.§ 607.07401, Fla. Stat. (2002).
. We acknowledge that "shareholder" is a term of art that includes a "beneficial owner." § 607.07401, Fla. Stat. (2002); Provence, 676 So.2d at 1024. Here, however, we reject Appellant's argument that he is a "beneficial owner."
. We recognize that the other proceeding, wherein Appellant's ownership interest was extinguished, is pending on appeal in this court. Should that judgment be reversed in such a manner as to once again vest Appellant with shares in the corporation, the dismissal of this action is without prejudice.