Crocker v. McMullan

• Decision Date: 04 December 1985
• Docket Number: Civ. A. No. J84-0603(B).
• Citation: 623 F. Supp. 963
• Parties: Ottis B. CROCKER, Jr., et al. Plaintiffs, and Federal Deposit Insurance Corporation, in its Corporate Capacity, Plaintiff/Intervenor, v. W.P. McMULLAN, et al. Defendants.
• Court: U.S. District Court — Southern District of Mississippi

623 F. Supp. 963

Ottis B. CROCKER, Jr., et al. Plaintiffs and Federal Deposit Insurance Corporation, in its Corporate Capacity, Plaintiff/Intervenor, v. W.P. McMULLAN, et al. Defendants.

Civ. A. No. J84-0603(B).

United States District Court, S.D. Mississippi, Jackson Division.

December 4, 1985.

Grady F. Tollison, Charles M. Powers, Oxford, Miss., Luke Dove, Chill, Chill, & Dove, Jackson, Miss., for plaintiffs.

Paul Stephens, Jackson, Miss., for FDIC.

Michael Hartung, Royals, Hartung & Davis, and Kenneth G. Perry, Shell, Buford, Bufkin, Callicutt & Perry, Jackson, Miss., for McMullen.

Calvin L. Wells, Jackson, Miss., for John Baxter Burns, III.

Earl Keyes, Keyes, Moss, Piazza & Woods, Jackson, Miss., for Clancy.

David W. Clark, Jackson, Miss., for Burns & Wise.

Russell D. Moore, III, Jackson, Miss., for Denson.

MEMORANDUM OPINION AND ORDER

BARBOUR, District Judge.

This matter is before the Court on the Motion of Plaintiff/Intervenor, Federal Deposit Insurance Corporation ("FDIC"), in its corporate capacity, to Dismiss the Complaint filed by Plaintiffs, Ottis B. Crocker, et al., ("Crocker"), and Plaintiffs' as yet uncertified class of all minority shareholders of the Mississippi Bank ("TMB"), for lack of standing to pursue their claims against Defendants, W.P. McMullan, Jr., et al., as majority shareholders, directors and officers of the now-defunct The Mississippi Bank.

FACTS

Prior to May 11, 1984, TMB was a banking institution organized and existing under the laws of the State of Mississippi. On May 11, 1984, the Commissioner of Banking and Consumer Finance of the State of Mississippi closed TMB pursuant to Miss.Code Ann. § 81-9-5 (1972). Immediately upon closing, the Commissioner petitioned the Chancery Court of the First Judicial District of Hinds County, Mississippi, for an adjudication of TMB's insolvency and for the appointment of FDIC as receiver of TMB. On May 11, 1984, TMB was adjudicated insolvent and FDIC was appointed receiver.

Thereafter, FDIC accepted appointment as receiver of TMB and took control of the assets and affairs of TMB. FDIC, as receiver, then entered into a purchase and assumption agreement with Grenada Bank whereby Grenada Bank assumed certain liabilities and purchased certain assets from FDIC as receiver. The FDIC, as receiver, also entered into the contract of sale with the FDIC in its corporate capacity whereby the corporation purchased all assets not purchased by the Grenada Bank pursuant to the purchase and assumption agreement. Specifically, the FDIC, in its corporate capacity, purchased all contracts, rights, claims, demands and choses in action whatsoever not purchased by Grenada Bank; all loans subject to an option in favor of the Grenada Bank; and all pending claims, actions or judgments, whether known or unknown, which the receiver owned, held, or had against any surety, insurer or other person or persons including, without limitation, any claim against any director, officer or employee arising out of any act or acts of any such person in respect to TMB or its property by virtue of the non-performance or manner of performance of their duties or against any shareholder or holding company of TMB.

On August 13, 1984, Plaintiffs, minority shareholders of TMB, filed suit for themselves and on behalf of a class of minority shareholders in TMB, for damages against certain former directors and/or officers of TMB who were the controlling, or majority, shareholders of TMB. The Plaintiffs' Complaint asserts three separate claims. Count I alleges a violation by Defendants of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1961, et seq. Count II asserts a claim based upon various misrepresentations to Plaintiffs as to the financial condition of TMB. Count III is based upon violations by Defendants of fiduciary duties owed as directors and/or officers and controlling shareholders of TMB to TMB minority shareholders.

FDIC moves to dismiss the Plaintiffs' Complaint on the basis that Plaintiffs lack standing to prosecute their claims since such claims are derivative in nature and belong to the FDIC, in its corporate capacity, pursuant to the contract of sale. Alternatively, FDIC moves to stay Plaintiffs' Complaint on the basis that the FDIC is entitled to preferential recovery from Defendants under the "absolute priority rule."

LAW

1. Non-Derivative Versus Derivative.

As a general rule, an action to redress injuries to a corporation, whether arising out of contract or tort, cannot be maintained by a shareholder in his own name but must be brought in the corporate name because the cause of action belongs to the corporation and not the shareholders whose rights are merely derivative. Warren v. Manufacturers National Bank of Detroit, 759 F.2d 542, 544 (6th Cir.1985); Schaffer v. Universal Rundle Corporation, 397 F.2d 893, 896 (5th Cir.1968); Vickers v. First Mississippi National Bank, 458 So.2d 1055, 1061 (Miss.1984); Bruno v. Southeastern Services, Inc., 385 So.2d 620, 622 (Miss.1980). According to Empire Life Insurance Company of America v. Valdak Corporation, 468 F.2d 330, 335 (5th Cir.1972),

the reason for this rule is that each shareholder suffers relatively in proportion to the number of shares he owns and each will be made whole if the corporation obtains compensation or restitution from the wrongdoer. If each shareholder could sue individually for his losses, the wrongdoer would be subject to "as many suits ... as there were stockholders in the corporation."

Consequently, a shareholder cannot maintain suit in his own name for injuries which affect the corporation as a whole or all its shareholders. See, e.g., Stevens v. Lowder, 643 F.2d 1078 (5th Cir.1981); Gregory v. Mitchell, 634 F.2d 199 (5th Cir.1981); Imperial Motors, Inc. v. Chrysler Corporation, 559 F.Supp. 1312 (D.Mass.1983); Stirling v. Chemical Bank, 382 F.Supp. 1146 (S.D.N.Y.1974).

A well-recognized exception to the general rule exists where the injury complained of creates not only a cause of action in favor of the corporation but also a cause of action in favor of a shareholder, as an individual, for violation of a duty owed directly to him. Empire Life, supra. at 335. Where the injury to the shareholder's stock is peculiar to him and does not fall alike on other shareholders, the shareholder may maintain an individual action. Id. As one court explained,

a derivative suit is brought to enforce a cause of action which the corporation itself possesses against some third party, a suit to recompense the corporation for injuries which it suffered as a result of the acts of third parties.... A stockholder's individual suit, on the other hand, is a suit to enforce a right against the corporation which the stockholder possesses as an individual. Smith v. Tele-Communication, Inc., 134 Cal. App.3d 338, 184 Cal.Rptr. 571, 573 (1982).

Moreover, the wrong necessary to support an individual action by a minority shareholder need not be unique to that shareholder, but may be shared in common by other minority shareholders. Jones v. H.F. Ahmanson & Co., 1 Cal.3d 93, 81 Cal.Rptr. 592, 460 P.2d 464, 471 (1969).

This Court, applying Mississippi law¹, concludes that the claims asserted by Plaintiffs, as minority shareholders, against Defendants, as majority shareholders and directors and/or officers, state individual causes of action. Plaintiffs' suit is clearly not an application for recovery by the corporation or all its shareholders. Damages are sought only on behalf of minority shareholders.

Moreover, the FDIC's contract of sale does not preclude the Plaintiffs' maintenance of this suit. Under the contract of sale, the FDIC, in its corporate capacity, purchased

"all contracts, rights, claims, demands, and choses in action whatsoever not purchased by the Assuming Bank (Grenada Bank) ... and all pending claims, actions or judgments, whether known or unknown, which the receiver owns, holds or has against any surety, insurer, or any person or persons whomsoever including, without being limited to, any claim or claims against its directors, officers, or employees arising out of any act or acts of such persons in respect to the Bank or its property, by virtue of the non-performance or manner of performance of their duties or against any shareholder or holding company of the bank."

The FDIC, as receiver, took control of the assets and affairs of TMB. The FDIC, in its corporate capacity, purchased only corporate claims belonging to the receiver — not individual claims belonging to minority shareholders.

Further, the authorities cited by the FDIC are inapposite. None involved a situation analogous to the one sub judice where minority shareholders sued majority shareholders for misrepresentation, breach of fiduciary duty, and for RICO violations.²

In Yanow v. Teal Industries, 178 Conn. 262, 422 A.2d 311 (1979), the plaintiff, a minority shareholder, brought an individual action and a shareholder's derivative action against the defendant corporation and its director and officer, claiming that the defendants had committed a series of corporate wrongs resulting in damages to the plaintiff individually and to the corporation. Specifically, the plaintiff alleged that the defendant engaged in nineteen transactions which were not disclosed to him and which had the effect of dismantling the corporation "step-by-step, transaction-by-transaction," depriving the corporation and the plaintiff of income and assets. Id. at 322.

The court held that plaintiff's claims were individual and not derivative. In so ruling, the court stated that the plaintiff's

... allegations claim a pervasive breach of the fiduciary duty owed by the corporate majority to the sole minority stockholder.... These causes of action are based upon alleged unlawful acts relating solely to the stock owned by the plaintiff, in violation of the fiduciary duty owed the plaintiff by the defendants, and they thus state individual, and

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