Shareholder Lacks Standing To Sue When He Was Only Harmed In His Capacity As A Shareholder
In the business litigation case of Steines v. Lombardi, PICS Case No. 15-0635, (C.P. Lawrence Jan. 28, 2015), the Honorable Cynthia L. Cox ruled that the plaintiff lacked standing where he failed to demonstrate that his damages were caused directly to him individually by defendant; his claims were derived from damages caused to the corporation and he was only harmed in his capacity as a shareholder.
Osteo Implant Corp. was formed by defendant Steven Lombardi, DMD on Aug. 18, 1986, with the purpose of designing and distributing a line of dental implants. Defendant was sole shareholder of Osteo Implant until 1996, when plaintiff William Steines, DMD purchased a 15 percent interest. On Dec. 17, 1998, plaintiff became an equal shareholder with defendant. They were the sole owners of Osteo Implant.
On March 12, 2004, defendant formed a new corporation called American Dental Implant Corp., which produced internal hex dental implants. Defendant was the sole shareholder for American Dental.
In 2006, defendant had earnings from American Dental and from Osteo Implant. In addition, Osteo Implant employees worked for American Dental while Osteo Implant was still conducting business. American Dental utilized Osteo Implant’s telephone number to sell products to customers calling for Osteo Implant.
In early 2007, defendant removed half of Osteo Implant’s inventory while awaiting an accounting during the dissolution of the corporation. However, Osteo Implant had yet to be dissolved and was still an entity under Pennsylvania law.
Plaintiff sought recourse for defendant depriving him of his salary, his share of corporate profits and a devaluing of his ownership interest in Osteo Implant. The first four counts of plaintiff’s amended complaint averred claims for breach of fiduciary duty, misappropriation of corporate assets, misappropriation of corporate opportunity and fraud. Plaintiff sought an accounting of the corporate assets in the fifth count.
Defendant moved for summary judgment, arguing that the first four counts of the amended complaint should be dismissed for lack of standing as they were filed by plaintiff as an individual shareholder, even though plaintiff sought to recover for injuries suffered by the corporation. Further, defendant argued that plaintiff failed to identify a legal duty owned by defendant to plaintiff. Defendant also argued that plaintiff failed to allege an injury that is separate and distinct from the injury sustained by the corporation.
Plaintiff filed a response contending that defendant waived the issue of lack of capacity to sue as it should have been raised in preliminary objections. Further, he argued that he had standing as he was directly injured by defendant utilizing inventory from Osteo Implant for competing corporation and by defendant’s continuing to use Osteo Implant’s telephone number for a competing business. Plaintiff also contended that he identified a legal duty that defendant breached and it caused an injury to plaintiff as an individual stockholder. In addition, plaintiff claimed that he identified an injury that was separate and distinct from the injury suffered by Osteo Implant.
Plaintiff failed to demonstrate that defendant directly damaged him individually. Instead, his claims were derived from damages caused to Osteo Implant by defendant and he was only harmed in his capacity as a shareholder. Therefore, plaintiff lacked standing to assert the claims.
As plaintiff was barred by from filing suit individually against defendant for damages sustained in his capacity as a shareholder, defendant did not waive his ability to raise a lack of capacity to sue defense by failing to assert the same in his preliminary objections.
The court declined to permit plaintiff to amend his amended complaint based on the applicable statute of limitations. The court dismissed counts one through four as plaintiff lacks standing to file suit against defendant as an individual shareholder. Plaintiff’s request for an accounting in court five was also dismissed.
Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 38PLW399 (Tuesday April 28, 2015)
Filed Under: Business Litigation, Misappropriation of Corporate Assets & Standing
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