Opinion ID: 2302242
Heading Depth: 2
Heading Rank: 1

Heading: Appellants' Derivative Claim

Text: The motion justice granted summary judgment in favor of plaintiffs on the claims that defendants brought on behalf of Lumar, reasoning that they had not complied with the requirements of Rule 23.1 because they were not shareholders at the time of plaintiffs' alleged misdeeds. Additionally, the motion justice expressed concern about the fact that the secretary of state had revoked Lumar's corporate charter in 2000, that the charter was not reinstated until after the sale, and that the reinstatement was achieved unilaterally by defendants. Moreover, he found it unsettling that a right of action could survive in Lumar, which was a closely held corporation, when all the parties with an interest in the corporation had agreed to the release. After considering the relevant law and the arguments of the parties, we affirm the ruling of the motion justice. Rule 23.1 provides that, in a derivative action by a shareholder, the verified complaint shall allege that the plaintiff was a shareholder or member at the time of the transaction of which the plaintiff complains or that the plaintiff's share or membership thereafter devolved on the plaintiff by operation of law. The Rhode Island provision is similar to the federal rule, and this Court frequently turns to federal case law for guidance in its interpretation of similar rules of procedure. See Greensleeves, Inc. v. Smiley, 942 A.2d 284, 290 (R.I.2007). The primary purpose of the so-called contemporaneous shareholder rule is to prevent[]    courts from being used to litigate purchased grievances. 7C Charles Alan Wright et al., Federal Practice and Procedure § 1828, at 66, 67 (2d ed.1986). In other words, this rule reflects a desire to curb the opportunism of individuals who might purchase shares simply for the purpose of bringing a derivative suit, thereby obtaining a windfall if the corporation recovers. [6] See Franklin A. Gevurtz, Corporation Law § 4.3.2 (2d ed.2010). Under federal law, the derivative action complainant must generally have acquired his stock before the wrongful conduct occurred. See, e.g., In re: Bank of New York Derivative Litigation, 320 F.3d 291, 297 (2d Cir.2003). [7] In this case, it is undisputed that Lumar Realty issued no stock until 2005, when defendants issued shares to themselves. Therefore, defendants were not shareholders at the time that the alleged wrongs took place, and, consequently, they have no standing to bring a shareholder derivative action under Rule 23.1. Therefore, we affirm the trial justice's granting of summary judgment in favor of the plaintiffs on count 1 of defendants' counterclaims.