Opinion ID: 1959565
Heading Depth: 2
Heading Rank: 3

Heading: Corporate Waste and Mismanagement

Text: In their summary judgment motion, the majority shareholders asserted that Moore lacked standing to maintain claims for corporate waste and mismanagement. Although the Superior Court did not state its reasons for granting the motion on these claims, we believe that this was the basis for the court's decision. In general, a claim for corporate waste and mismanagement is required to be brought as a derivative action because it is the corporation that has been harmed. See 12B Fletcher Cyclopedia of Corporations § 5923 at 526-27 (Perm. ed. 1993). In a close corporation, determining whether an action must be brought as a direct or derivative suit is often difficult. 2 O'Neal's Close Corporations § 8.11 at 120. The general rule is that an action to redress an injury to a corporation must be brought as a derivative suit and may not be maintained by shareholders acting in their individual capacities. Dowling v. Narragansett Capital Corp., 735 F.Supp. 1105, 1113 (D.R.I.1990). However, if the injury in question is one sustained by the shareholders, directly, they may sue on their own behalf. Id. Thus, in order for Moore to prosecute his claim for corporate waste and mismanagement, he must have suffered harm that is separate and distinct from that suffered by the other stockholders. Forbes v. Wells Beach Casino, Inc., 307 A.2d 210, 221 (Me.1973). See also 2 O'Neal's Close Corporations § 8.11 at 120-21 (shareholder of close corporation may bring direct action where he suffers harm separate and distinct from injury to the corporation); 12B Fletcher Cyclopedia of Corporations § 5924 at 532-33 (The exception to the rule forbidding direct shareholder suits against management is most compelling where the alleged wrong unfairly affected the minority shareholders but did not work an injury either to the corporation or its majority shareholders.). In the present case, the record contains evidence that Moore suffered an injury separate and distinct from the majority shareholders. First, Moore was terminated as president. Second, the majority shareholders paid dividends only to themselves from the line of credit which Moore and his wife guaranteed. And third, Moore was the only shareholder who was prevented from participating in director meetings. Viewing the evidence in the light most favorable to Moore, we conclude that there was a genuine issue of material fact as to whether he had standing to maintain a claim for corporate waste and mismanagement. The court erred in entering a summary judgment on this claim.