Opinion ID: 72909
Heading Depth: 4
Heading Rank: 2

Heading: The Derivative Claims

Text: In addition to their individual claims, Karns, Konstand, and Malick each brought claims on behalf of other entities. Karns and Konstand brought shareholder derivative suits on behalf of BCI, while Malick brought a partnership derivative suit on behalf of BGH. The district court granted summary judgment against the plaintiffs on all of these derivative claims, and the plaintiffs have appealed from that judgment. a. Karns’ and Konstand’s Shareholder Derivative Claims The district court dismissed Konstand’s and Karns’ claims because it concluded that shareholder derivative suits do not confer RICO standing. Relying on the tripartite analysis that the Fifth Circuit adopted in Whalen v. Carter, 954 F.2d 1087 (5th Cir. 1992), the district 17 court noted that a shareholder derivative suit has three characteristics that normally identify a claim lacking RICO standing: (1) the alleged racketeering activity is directed at the corporation; (2) the injury to shareholders is derived from the injury suffered by the corporation; and (3) the claim accrues in the corporation. Because a shareholder derivative suit satisfies each of those conditions, see id. at 1091, the district court concluded that the injury in such suits is too indirect for the suit to be brought under RICO. We believe that the Fifth Circuit’s Whalen analysis is applicable only where shareholders sue “for the loss in value of their shares,” id., at 1091, not where they sue on behalf of the corporation itself to recoup its losses. The Whalen analysis does not bar shareholder derivative suits, which are brought to recover the corporation’s losses. Therefore, the district court erred in concluding that plaintiffs bringing a shareholder derivative action lack RICO standing. See Manson v. Stacescu, 11 F.3d 1127, 1132 (2d Cir. 1993) (noting that proximate cause requirement serves judicial economy by forcing shareholders to recover for injuries under RICO by bringing single shareholder derivative claim on behalf of corporation); Warren v. Manufacturers National Bank of Detroit, 759 F.2d 542, 544 (6th Cir. 1985) (RICO action to redress injuries to corporation cannot be maintained by shareholder in own name; must be brought in name of corporation either by corporation or as shareholder derivative suit) (citing Stevens v. Lowder, 643 F.2d 1078, 1080 (5th Cir. Unit B Apr. 1981)). What remains to be decided, however, is whether these plaintiffs have brought a proper shareholder derivative action. 18 In addition to alleging the underlying offense against the corporation, the plaintiff in a shareholder derivative suit must allege that he is a shareholder and must name the corporation as a party to the suit. See, e.g., Fla. Stat. § 607.07401. Konstand and Karns have met all of those requirements. In paragraph one of the complaint, Konstand and Karns both assert that they are bringing claims both “individually and as shareholders of BCI,” and they have named BCI as a defendant. Evidence that both sides have presented through affidavits, depositions, and at trial indicates that the alleged sch3emes were directed at BCI and BGH. Accordingly, Karns and Konstand have brought proper shareholder derivative claims, and have RICO standing to pursue claims on behalf of the corporation. b. Malick’s Partnership Derivative Claim Malick contends that he has asserted a valid RICO claim through his partnership derivative suit. In 1986, Florida law was amended to allow limited partners to bring derivative suits in the same manner as shareholders. See Fla. Stat. § 620.163. Accordingly, Malick as a limited partner in BGH can assert a derivative claim on behalf of the partnership in the same manner that the shareholders of BCI can assert a derivative claim on behalf of the corporation. As Malick points out, the defendants have consistently maintained that the alleged racketeering scheme targeted BCI and BGH as entities, rather than targeting particular individuals. Malick contends that because his derivative suit recognizes the partnership BGH as the real party in interest, and because the alleged schemes were directed in part at BGH, his partnership derivative claims have RICO standing. 19 The district court dismissed Malick’s claim on the grounds that it did not assert a proper partnership derivative claim. Malick failed to name the partnership, BGH, as a party to this action. In a partnership derivative suit, the partnership is an indispensable party. See Liddy v. Urbanek, 707 F.2d 1222, 1224 (11th Cir. 1983) (holding that corporation is an indispensable party in a derivative suit); Lenz v. Associated Inns and Restaurants Co. of America, 833 F. Supp. 362, 378 (S.D.N.Y. 1993) (“Simply put, in a derivative action brought by a limited partner, the limited partnership is an indispensable party.”) (interpreting New York and Oklahoma partnership law, both of which are based on Uniform Partnership Act, 6 U.L.A. §§ 1001, 1002, which serves as the model for the Florida statute authorizing such derivative actions). Malick's argument that BGH does not need to be named as a party because the Florida statute authorizing limited partner derivative suits does not expressly require it, see Fla. Stat. §§ 620.163, 620.164, misses the point. Malick was required to name BGH in order to plead a proper derivative action even absent a statutory requirement, because BGH is an indispensable party. Accordingly, while Konstand and Karns have properly asserted shareholder derivative claims, Malick lacks RICO standing because he has failed properly to state a proper partnership derivative claim.5