Opinion ID: 1216412
Heading Depth: 1
Heading Rank: 3

Heading: direct recovery by shareholder

Text: The parties as well as the trial court treated this litigation as a stockholders' derivative suit brought on behalf of the corporation. As a general rule, recovery in such actions inures to the corporation rather than to the stockholders as individuals. Note, Shareholders' Right to Direct Recovery in Derivative Suits, 17 Wyo.L.J. (1963). We referred to this principle in Centrella v. Morris, Wyo., 597 P.2d 958, 962 (1979), quoting from Smith v. Stone, 21 Wyo. 62, 95, 128 P. 612, 621 (1912): `   The stockholder, either individually or as the representative of the class, may commence the [derivative] suit, and may prosecute it to judgment; but in every other respect the action is the ordinary one brought by the corporation, it is maintained directly for the benefit of the corporation, and the final relief, when obtained, belongs to the corporation, and not to the stockholder-plaintiff.' Quoting from the early work of Pomeroy's Equity Jurisprudence (3d Ed.), § 1095. Nevertheless, courts sometimes permit pro-rata recovery by individual shareholders to prevent an award from reverting to the wrongdoers who remain in control of the corporation. Backus v. Finkelstein, 23 F.2d 357 (D.Minn. 1927); Dill v. Johnston, 72 Okl. 149, 179 P. 608 (1919); Crichton v. Webb Press Co., Ltd., 113 La. 167, 36 So. 926 (1904); Eaton v. Robinson, 19 R.I. 146, 31 A. 1058 (1895). See also Perlman v. Feldman, 219 F.2d 173 (2nd Cir.1955). The federal district court in Backus v. Finkelstein reasoned that individual recovery was necessary to avoid further litigation:    For obvious reasons, it may be highly improper to direct that the moneys here recovered on behalf of the corporation shall be paid into the treasury thereof. That might be paying the moneys back into the custody and control of those from whom the recovery is had. It might defeat effectually the purpose of the suit and be the beginning of another prolonged cycle of litigation. Unless conditions shall ensue which will materially change the situation, the distribution, so far as possible, should be directly to the individuals who will ultimately be entitled thereto. 23 F.2d at 366. We find the reasoning in this opinion sound and applicable to the case at bar. Corporate recovery would simply return the funds to the control of the wrongdoers. The three defendant directors in the case at bar constitute the policy-making body of the corporation. Smith v. Stone, supra. They manage the business and affairs of the corporation under statutory authority. [2] Furthermore, two of the directors hold 70 percent of the voting stock in the corporation. Given the family orientation and small number of shareholders of LCS, any change in control of the corporation is unlikely. Direct recovery assures that Patterson will reap some benefit from his lawsuit. We refuse to order payment into the corporate treasury in this case and risk necessitating a subsequent suit by Patterson to compel the directors to declare a dividend or apply the funds to legitimate corporate purposes.