Opinion ID: 776749
Heading Depth: 2
Heading Rank: 4

Heading: Plaintiff's Standing to Sue Directly

Text: 41 Applying Maryland's law of shareholder standing to the plaintiff's four alleged injuries, we conclude that one that he alleges does not support direct claims under Maryland law. The remaining alleged injuries, however — describing the set of harms arising from the alleged coercion — do. 42 The plaintiff alleges a loss in share value resulting from the substantial underwriting and other transactional costs associated with the Rights Offering. Compl. ¶ 11. He effectively concedes in his reply brief, however, that this alleged injury cannot support direct claims under Maryland law, and we agree. Underwriter fees, advisory fees, and other transaction costs incurred by a corporation decrease share price primarily because they deplete the corporation's assets, precisely the type of injury to the corporation that can be redressed under Maryland law only through a suit brought on behalf of the corporation. See O'Donnell, 336 Md. at 28, 646 A.2d at 403. 43 The plaintiff's remaining alleged injuries can be read to describe the set of harms resulting from the coercive nature of the rights offering. The particular harm allegedly suffered by an individual shareholder as a result of the coercion depends on whether or not that shareholder participated in the rights offering. For example, when read in the light most favorable to the plaintiff, the alleged injury of substantial downward pressure on the price of the Fund's shares resulting from the issuance of new shares describes the reduction in the net equity value of the shares owned by non-participating shareholders. Compl. ¶ 9. 8 Similarly, the alleged injury from the downward pressure on share prices resulting from the setting of the exercise price of the rights ... at a steep discount from the pre-[r]ights [o]ffering net asset value can be read to refer to the involuntary dilution in equity value suffered by the non-participating shareholders. Compl. ¶ 10. 9 44 Whether the participating shareholders also suffered harm to their assets, at least in terms of overall financial position, is not obvious, and the complaint is less specific in this regard. In terms of the dilution that resulted from the rights offering, the participating shareholders actually benefitted from the non-participating shareholder's injury, as the participating shareholders received the redistributed equity in the Fund. On the other hand, participating shareholders may have suffered harm in the form of transaction costs in liquidating other assets to purchase the new shares, and the impairment of their right to dispose of their assets as they prefer if they purchased new shares to avoid dilution. 45 While it is not clear to us that the injuries allegedly sustained by the participating shareholders are redressable, we leave that question for the district court to resolve in the first instance. It is clear, however, that the claims of the shareholders generally cannot be dismissed for failure to state a direct, as opposed to derivative, claim, as the district court did. The alleged injuries resulting from the coercive nature of the rights offering do not derive from a reduction in the value of the Fund's assets or any other injury to the Fund's business. Indeed, with reference to the shareholders that purchased new shares in order to avoid dilution, the acts that allegedly harmed the shareholders increased the Fund's assets. And as for the non-participating shareholders, the reduced value of their equity did not derive from a reduction in the value of the Fund's assets, but rather from a reallocation of equity value to those shareholders who did participate. 46 Thus, in the case of both the participating and non-participating shareholders, it would appear that the alleged injuries were to the shareholders alone and not to the Fund. These harms therefore constitute distinct injuries supporting direct shareholder claims under Maryland law. The corporation cannot bring the action seeking compensation for these injuries because they were suffered by its shareholders, not itself. 10 47 In deciding that the plaintiff has shareholder standing to bring direct claims for the injuries arising from coercion based on the allegations in his complaint, we do not express or intend to imply any view with respect to the merits of those claims. Indeed, we cannot tell from the complaint whether the plaintiff is a participating or non-participating shareholder, and thus the sort of injury for which he personally seeks a remedy. We therefore do not express a view as to which groups of shareholders the plaintiff might suitably represent or the redressibility of their claims, i.e., whether, if a breach of the duty running from the defendants to the shareholders is proven, a remedy in law or in equity may be fashioned that will fairly and appropriately redress the distinct types of injuries suffered by them. We leave this all to the district court on remand.